also been reached on the single resolution mechanism ( srm ), with an effective governance and a clear road map towards constituting a single resolution fund. in combination with the agreement to enhance the fund ’ s borrowing capacity, this will help to break the link between national banking systems and sovereigns within the euro area and it will protect taxpayers ’ money in the orderly resolution, notably, of cross - border cases. it is important now to keep up the legislative momentum, also at the national level, in order for the ssm and the srm to become operational within approximately one year. it is worth acknowledging the very significant progress that has been made in less than two years on europe ’ s ambitious commitment to build a genuine banking union. as regards fiscal policies, euro area countries have made substantial progress with fiscal consolidation over the past few years. in the euro area, the average budget deficit has halved compared with the peak level during the crisis. this has created some room for slowing the pace of consolidation. however, we must avoid the pitfall of being complacent in order not to repeat the mistakes from pre - crisis times. euro area countries should not unravel past consolidation achievements and should put high government debt ratios on a downward trajectory over the medium term, in line with the stability and growth pact. fiscal strategies should ensure a growth - friendly composition of consolidation to achieve better quality and more efficient public services. in this respect, we welcome the work presented in the last two editions of the imf fiscal monitor on identifying well - designed and growth - friendly consolidation measures on the revenue and expenditure sides of the budget. lastly, although major progress has been made, euro area countries need to strengthen their efforts to reform their labour and product markets in a decisive way in order to improve competitiveness, raise potential growth and generate employment opportunities. more precisely, labour markets need to be more inclusive, flexible and resilient, while product markets, including those for services, should be made more efficient and dynamic. in addition, countries should take further steps towards improving the business environment and more growth - friendly taxation. bold and effective implementation of these measures is crucial and primarily in the interest of the individual countries. at the same time, it is key for strengthening the functioning of the economic and monetary union and will support the global recovery. finally, it is also fully congruent with the call of the imf managing director in her global policy agenda for the euro area to make its contribution to rein

. on the fiscal front, effectively balancing the social contract between generations means creating room for stabilising policies in future downturns and protecting the coming generations by forcing the distributional debate to take place in the present. this balancing act focuses on the quality of public expenditures and implies that deficits are justified only to the extent that they deliver sufficient returns in terms of future fiscal revenues ( through public investment supporting total factor productivity, for instance, or through the countercyclical impact of automatic stabilisers ). on the financial front, redefining the social contract between generations means realigning today ’ s incentives so that tomorrow ’ s fiscal policy is not threatened by financial dominance. bailing out banks with taxpayers ’ money is indeed both unfair and a factor of moral hazard. a closer link therefore needs to be restored between the responsibility that arises out of excessive leverage and the costs associated with deleveraging. the social contract also needs to be rebalanced between the generations alive today. there is ample room for a debate on the distributional impact of fiscal and economic decisions. fairness, a concept which has a particular resonance in this university thanks to john rawls6, is a legitimate objective : solidarity can help to ensure that economic progress for the many is not achieved at the expense of impoverishing the least fortunate households or depriving them of their right to equal opportunities. a reduction of rents and entry barriers, which notably disadvantage younger men and women on the labour market, is in that sense fully consistent with the objective of fairness, while also making the economy more competitive by setting the right incentives. national social contracts will continue to differ depending on the distributional choices made by each constituency. but europeans now have to recognise that such choices need to be fully in line with the sustainability imperative. across countries what does the social contract mean at european level? here again, there are two dimensions to consider : a horizontal and a vertical dimension. the horizontal dimension concerns the rights held and responsibilities borne by each member state vis - a - vis its partners. the vertical dimension concerns the contract that exists between individual citizens and the european union. both need to be redefined in the light of the crisis. the european social contract primarily binds all member states of the european union in the pursuit of the eu ’ s objectives, as laid down in the treaties. i will focus here on another and even more demanding contract, the one that binds the euro area countries. sharing a single j. rawls,