The establishment of the European Stability Mechanism, and the progress made in setting up a banking union, have fixed some of the shortcomings in euro area governance and instruments. These steps were important in easing the pressure the crisis has put on the ECB. But many of the institutional failings that caused and perpetuated the crisis remain unresolved. Incentives to pursue sound policies remain too weak and stabilisation of shocks too difficult. These are deep-rooted issues that cannot be resolved by a few years of above-trend growth. To assume that the current economic expansion will heal all wounds is naive. The euro area needs reform.[…]