1. Peter Bofinger University of Würzburg German Council of Economic Advisors

2.  Coordination of the overall fiscal policy stance, especially in recessions  Surveillance of unsustainable private sector financial positions  Surveillance of wage-dumping and excessive wage increases  Improvements of the SGP

3.  Delors-Report (1989) „(…) the fact that the centrally managed Community budget is likely to remain a very small part of total public-sector spending and that much of this budget will not be available for cyclical adjustments will mean that the task of setting a Community-wide fiscal policy stance will have to be performed through the coordination of national budgetary policies. Without such coordination it would be impossible for the Community as a whole to establish a fiscal/monetary policy mix appropriate for the preservation of internal balance…Monetary policy alone cannot be expected to perform these funcions. „ http://ec.europa.eu/economy_finance/euro/origins/delor s_en.pdf 3

4. Structural budget balances. Source: OECD

5. Change in the general government cyclically-adjusted financial balance Source: OECD

6.  European Council should decide on a target path for the reduction of the aggregate structural fiscal deficit  Countries with more room for manoeuvre should be required to take the overall target into account

7. Source: OECD

9. Private sector balance = Current account balance – general government balance

10. YOY growth rate bank loans to the private non-bank sector. Source ECB

11. “In 2006 the current account of the euro area recorded a deficit of €16.2 billion (or 0.2% of GDP), compared with a deficit of €6.8 billion in 2005 (or 0.1% of GDP).”

12.  ECB must be made responsible for financial stability  The ECB must adopt a responsibility for financial imbalances within the euro area  ESRB should prescribe country specific risk weights reflecting the financial situation of the private sector

13. Unit labour costs adjusted by an annual inflation target of 1.9%

14. “In particular, large price and cost adjustments will be needed in Member States which have accumulated large losses in competitiveness and large current account deficits in pre- crisis years.”

15. “In Member States which accumulated large current account surpluses in pre-crisis years, there is a need to identify and tackle the sources of persistent weakness in some parts of private sector demand, including the possible role of a lack of competition in the service sector, of the tax system and credit constraints“

16.  European Commission should provide annual guidelines for the average wage growth in member countries that are in line with national productivity growth and the ECB‘s inflation target  Discussion of national measures that influence competitiveness (e.g. reduction of social security contributions plus VAT increase)

17.  Lack of a „memory“ for excessive deficits  Expenditure rules instead of deficit targets  Sanctions that address the underlying problems  Monitoring of government revenues

20.  Currency union is a very tight relationship  Crisis reflects that the partners so far were mainly following their (short-sighted) national interests  Sustainability of EMU requires a willigness to increase coordination in the areas fiscal policy, financial supervision and wage developments