The euro area sovereign debt crisis has its origins in the build-up of excessive economic, fiscal and financial imbalances in the euro area during the upswing of the credit cycle. Some euro area countries are experiencing severe financial and fiscal crises, as banking inflows have reversed and economic weakness has undermined the public finances. Resolving the underlying imbalances requires a range of policy responses across the euro area, notably structural reforms to bring savings and investment more closely into balance and a shift in relative prices across countries.In the near term, events have exposed the need for a funding mechanism to deal with sovereign liquidity crises within the currency union. The euro area authorities have responded with the creation of the European Financial Stability Fund (EFSF) and the future European Stability Mechanism (ESM). The ECB has played a key role in ensuring that the banking system across the euro area has had appropriate access to liquidity.The experience of the past decade underlined the need for a new cross-cutting approach to the governance of the euro area to avoid future imbalances and as the counterpart for the new crisis management arrangements. Economic, fiscal and financial governance and oversight have been strengthened significantly. However, implementation of the new framework will be key and further measures are needed in some areas, notably in creating a European system of financial crisis management and weakening the close link between banks and their domestic sovereigns.