E urozone governance was for long a name without a game. The crisis, however, has brought much-needed clarity. Discussions are now focusing on three areas: strengthening of budgetary discipline; surveillance of the eurozone countries' competitiveness; and provisions for crisis management.

This is a sensible agenda. The failure of surveillance over the past 10 years needs to be remedied because, in spite of multiple procedures, it was markets, not peer pressure, that in the end forced adjustments. The system needs to be rebalanced because the exclusive focus on public accounts distracted attention from bubbles in the private economy. It also needs to be complemented, because the belief that crisis prevention made crisis management superfluous was proved wrong by events.

The devil, however, is in the detail. On budgetary discipline, the consensus in the European Council is that there is a need for more sanctions. Yet the Greek disaster did not result from a lack of sanctions but from not checking the data reported. Ireland's and Spain's problems did not come from ignoring the European Union's stability and growth pact either, but from the fact that the system took no account of risk. When a country's budget balance can move from a 2 per cent surplus to an 11 per cent deficit within two years, sanctions that kick in when a 3 per cent deficit threshold is crossed, or even before, are ineffective. What is needed is to stress-test budgets and adopt an approach whereby buffers are adopted in proportion to the risks involved.