to deal with ( domestic and cross - border ) systemic risks in the banking sector. to be true, in the late 80s / early 90s the concept of systemic risk hardly existed. the flaws of the original treaty are therefore less of a conceptual nature – unless one applies the intellectual framework of today with the benefit of hindsight to judge the design of the early 90s. the main flaw in my view was that the political authorities and economic agents did not internalise enough what participation in a monetary union means. they received the benefits of reduced interest rates but missed out on the obligations for the country itself ( i. e. the need for adjustment through the domestic economy ) and towards other countries ( arising from negative spillovers linked to unbalanced domestic policies ). a coherent and viable architecture of emu ought to be based on more integrated frameworks for budgetary matters, economic policy, financial sector and democratic accountability. bis central bankers ’ speeches in light of the crisis and the urgent responses it required in the short term, one may lose sight of the major institutional progress achieved since the crisis erupted. besides putting in place crisis management tools and financial firewalls that not only proved effective but also underlined a degree of solidarity unseen before to accompany ambitious reform programs which began – where implemented – to yield results, european leaders have adopted major decisions aimed at significantly reinforcing the architecture of emu. first, the fiscal framework has been strengthened since the start of the crisis to improve fiscal discipline and restore fiscal sustainability in euro area member states. in particular, fiscal surveillance has been enlarged and fiscal governance has been enhanced by procedural steps to nearly automatic sanctions. we expect that no further holes will be punctured in this strengthened sgp. there are encouraging signs. national governments are addressing their fiscal imbalances. the euro area ’ s progress in fiscal consolidation is much more advanced than that of other regions of the world. its average fiscal deficit in 2013 is projected to be 3. 1 % of gdp, compared with a 5. 8 % deficit in the us or a 9. 5 % deficit in japan. gross general government debt is expected to peak at 96 % of gdp in the euro area this year vs. 106 % in the us and 244 % in japan. second, economic governance at european level has been improved by implementing the macroeconomic imbalance procedure ( mip ). the mip has been set up to enhance surveillance, identify potential risks and correct existing imbalances. this has been complement

crunch that has further aggravated the crisis. cyclical factors have thus played an important role in increasing unemployment. the ecb has reacted to the crisis on three fronts. as for “ conventional ” monetary policy, it has cut interest rates from 1. 5 % in november 2011 to 0. 5 % today. it has reduced the interest rate paid by banks on their deposits at the ecb from 0. 75 % in november 2011 to – 0. 20 % today. it also activated at the end of 2011 credit lines for the banking system amounting to €1 trillion and with an unprecedented maturity of three years. subsequently, facing the reemergence of the sovereign debt crisis and a serious crisis of confidence about the survival of the euro, it introduced the now famous outright monetary transaction programme which has helped to rapidly reduce uncertainty in the financial markets in the euro area and to realign spreads with the credit rating. more recently, it has introduced a further three measures of unconventional monetary policy : the tltros, credit lines of up to four years that can be used by banks for loans to households and businesses ; two programmes for the purchase of covered bonds and abs with the aim being to further expand liquidity via operations directed towards the real economy. all these policy actions, accompanied by the expected maintenance of interest rates at their current level for a long period of time and an ongoing expansion of the ecb ’ s balance sheet, together with the commitment by the bis central bankers ’ speeches governing council to take further unconventional policy actions should medium - term inflation expectations worsen or if the measures already decided on prove to be insufficient, has led to an unprecedented degree of monetary accommodation. today, all the current and expected market interest rates over all horizons are lower than they have ever been, and lower than they are today in the united states. but most of the measures taken may have effects on the real economy only through banks, which in the euro area intermediate about 80 % of the credit. only if they pass on to households and businesses the extraordinarily accommodative conditions in terms of interest rate, the maturity, the quantity that the ecb offers them, will monetary policy be fully effective with its stimulus. for that to happen it is not only necessary for there to be demand for credit from customers able to repay it, but that they [ the banks ] themselves are healthy. it is to this end that the ecb, on the eve of becoming the single supervisor for the euro area