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from Part III - The future of the euro area
Published online by Cambridge University Press: 07 October 2011
How can we strengthen public confidence in the euro project following the Greek public debt crisis? To do so, it is crucial to remove the risk of a full-blown sovereign debt crisis, which could easily trigger a banking crisis, in the euro area. This requires us to resolve the conflict between national fiscal policy and supra-national monetary policy by reinforcing the institutions underpinning fiscal policy.
To my mind, three sets of measures need to be adopted: we need to strengthen the Stability and Growth Pact (SGP); we must ensure that fiscal policy is subject to stringent surveillance and supervision; and we have to make sure that there is a permanent and credible crisis resolution mechanism that provides incentives for investors not to lend, and for governments not to borrow, excessively.
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