of consumption spent through cards appears to have halted. another challenge to be faced is related to the revenue - heavy fiscal mix. the bank of greece has repeatedly stressed the need to shift the current fiscal policy mix away from distortionary taxation, with a view to making fiscal policy more growth - friendly and sustainable. for example, in the latest monetary policy report ( july 2019 ), research carried out at the bank of greece showed that a lower tax burden on labour income can generate considerable permanent gains in economic activity. furthermore, a lower tax burden on labour could become self - financed already in the medium term, if combined with fiscal structural reforms that improve tax compliance. it is a positive development that the government stated, right from the beginning of its term, that it will respect the agreed fiscal targets. at the same time, and as the bank of greece has been arguing for a number of years, the government is negotiating with the institutions a reduction, directly or indirectly, of the primary surplus target. a lower, more realistic, primary surplus target compared to the current one of 3. 5 % of gdp through 2022, if combined with more reforms and privatisations, would very probably imply lower, rather than higher public debt. this is so because, with a public debt - to - gdp ratio of 180 %, a one percentage point - higher growth rate ( likely to mateliarise if the lower primary surplus target is achieved through lower taxes and social contributions, combined with more privatisations and reforms ) and / or 100 basis points - lower borrowing costs ( already materialised, relative to the european commission ’ s baseline scenario ) are 1. 8 times more effective in reducing the debt ratio than an additional gdp percentage point of primary surplus. the fact that borrowing rates today are much lower than under the baseline scenario in the european commission ’ s debt sustainability analysis provides leeway for easing the fiscal targets without compromising debt sustainability. moreover, the stability and growth pact allows for fiscal flexibility so long as additional reforms increase potential growth. overall, there are plenty of arguments in favour of lower primary surplus targets and ample room for a compromise solution. in such a solution, primary surpluses could be lowered in exchange for an acceleration of reforms ; the outcome will be a win - win situation for both greece and its eu partners, given that greece will be able to return faster to a high growth path that safeguards fiscal sustainability and the repayment of bail - out funds. downside risks related to external

in order to safeguard the stability of the euro area as a whole – could inject capital directly into banks, this would also help to break the bank - sovereign loop. of course, such support must come with strong conditionality and control. let me note that depending on its design, the financial union could introduce additional elements of risk - sharing among euro area countries, and as such, it should be subject to strong democratic accountability and control at national and european level. most importantly, all euro area countries need to return to sound macroeconomic and fiscal positions. this may sound obvious, but unfortunately it has threatened to slip out of focus in some of the recent discussions. there has been substantial progress towards consolidating the foundations of emu. fiscal rules are being strengthened, and almost all european governments have signed a treaty that contains the so - called fiscal compact, which mandates all contracting parties to introduce legally enforceable debt brakes in their countries. 3 the reformed governance framework also provides new tools to improve budgetary surveillance as well as to prevent and address macroeconomic imbalances – the “ six - pack ” reforms and the “ two - pack ” legislation are examples and should be forcefully implemented. looking ahead, a path towards a fiscal union, based on a principle of responsibility and with proper control and accountability, would provide a sound “ fiscal pillar ” on which the single currency could safely rest. some have suggested that it could provide a basis for the introduction of euro area - wide funding instruments with joint and several liabilities. such instruments could contribute to a smooth functioning of a stability - oriented monetary policy, protecting member states from temporary tensions arising in some parts of the union and offsetting the emergence of selffulfilling expectations leading to bad equilibriums. there is an important caveat, however. in his 1790 report on public credit, alexander hamilton wished “ to see incorporated, as a fundamental maxim in the system of public credit of the united states, that the creation of debt should always be accompanied with the means of its extinguishment ”. common funding instruments would require shared decision making on national debts and deficits and probably joint control on fiscal expenditures and taxation. they can only result from further political integration ; they cannot precede it. likewise, and importantly, a fiscal union can only come about once the participating countries have successfully restored domestic fiscal sustainability and solidified the conditions for long - term growth. joint debt issuance cannot be a substitute for putting national fiscal houses in order and