Bank balance sheets always partly reflect national economic developments and a host of economic policy decisions. As long as key variables continue to be decided upon at the national level, introducing comprehensive mutual liability would be the wrong thing to do. A banking union can help to sever the negative feedback loop linking governments and banks, and it can enhance financial stability.
But further action will be needed if we are to prevent this vicious circle from simply being shifted from the national to the European level. That means putting an end to the preferential treatment given to sovereign risk in bank balance sheets.