A banking union can be a big step in that direction – but again, we need to harness the disciplinary forces of the market, not do away with them.
Core elements of a comprehensive banking union therefore have to be not just an effective single supervisory mechanism, but also a comprehensive bail-in of bank creditors, and a cap on exposure to individual sovereign as well as an adequate risk-weighting of sovereign bonds on banks’ balance sheet – at least in the medium term. Let me elaborate slightly on the second point.