Europe’s financial storm may have passed its peak, but it is not yet finished blowing. Euro area leaders, meeting in Brussels on Friday, will announce a wave of reforms. Plans for a Franco-German competitiveness pact will not do enough to deal with the present crisis, or prevent another. But they will be a step forward, and one that must now be followed with further moves to ensure Europe becomes more convergent and competitive.

The outlines of the deal set to emerge in coming weeks seem clear. There will be stricter oversight of national budgets by the European Commission, with more equal weight given to deficits and debt. Greater alignment of financial market, banking, and regulation policies is likely, together with further reforms of cross-border bank resolution, living wills, and credit monitoring. A permanent crisis resolution mechanism has already been agreed.

Europe’s competitiveness problems, however, require a more aggressive deal than that currently proposed. Rising relative costs and prices have damaged peripheral economies, deepening the euro area’s dangerous imbalances. Markets are also rightly worried that the reforms will not go far enough, especially if it then does not prove possible for the authorities in the core countries – and Germany and France in particular – to persuade electorates of the case for an enlarged, suitably funded and flexible crisis resolution mechanism.