the economic and monetary union : time to break the deadlock keynote address by ignazio visco governor of the bank of italy omfif - banca d ’ italia seminar “ the future of the euro area ” rome, 15 november 2019 this seminar comes at a difficult juncture for europe. the tide of the global financial crisis and the sovereign debt crisis has long fallen, but its poisonous legacy and geopolitical tensions are fuelling distrust, fears and even prejudices once thought long buried. the european construction is at a standstill while progress is badly needed in the key areas, where the union is better at prohibiting things than at getting them done. although the single currency was a vital step on the path to european integration, the economic and monetary union remains an unfinished construction. europe ’ s architects knew this, and wanted and anticipated greater progress in the future. even before the introduction of the euro, the unusual status of a stateless currency had been underlined, as had the institutional solitude of the european central bank ( ecb ) and the problems posed by the imperfect mobility of capital and labour. the risks inherent in this situation materialised with unanticipated violence during the sovereign debt crisis. the inadequacy of the euro area ’ s economic governance was laid bare. hesitancy in defining the procedures to support countries in difficulty fuelled fears of a break - up of the euro. spreads on government bond yields widened dramatically, in some cases by far beyond what would have been justified by the economic and financial conditions of the countries affected, making these conditions all the more difficult to overcome. the proposals for reform drawn up after the peak of the crisis envisaged the gradual strengthening of integration, first in the financial area and then for public finances. yet, seven years later, only partial progress has been made. the banking union is incomplete and not without flaws, the foundations for the capital union are still being laid, and fiscal union has been postponed to an unspecified future date. concerns about the public and private financial vulnerabilities accumulated during the crisis and mutual distrust keep progress on hold. while risk reduction and sharing should go hand in hand and mutually reinforce one another, uncertainty around how to proceed, disagreement on the sequence and effects of interventions, and fears of negative spillovers produce a standstill in the reform process. as a consequence, the euro area ’ s economic integration is being held back and the area itself continues to be exposed to financial risks. this dead

is the basis for the initial conditions when we use nemo and when we make our policy decisions – and hence of core importance to monetary policy. theory and experience suggest that a weighted average of forecasts from different models is often more accurate than forecasts provided by individual models. norges bank ’ s short - term forecasts are based on combinations of statistical and econometric models, where each model is assigned a probability depending on past density forecasting performances. currently, we are working on how to incorporate mechanically density predictions from sam into nemo. the few examples that i have just described show how research on macro modeling and forecasting is important for our work. we are well aware that there will always be ample room for improvement in our toolbox, and we are fortunate to have such prominent speakers with us here today. this workshop is a great opportunity for us to become familiar with recent advances in bayesian econometrics. in addition to the pleasure of the scholarly discourse, i also hope you will have the opportunity to enjoy oslo. bis central bankers ’ speeches