And as long as there’s no willingness to transfer national sovereignty to the European level, there will be no basis for mutualising sovereign risks – and that’s why the proposal to establish a European Deposit Insurance Scheme (EDIS) isn’t the right institutional response to restore the balance between liability and control in the euro area.
As long as actions taken at the national level, such as drafting insolvency laws, or very high stocks of government bonds on banks’ balance sheets can have a substantial impact on the health of financial institutions, EDIS would allow risks from national decisions to be shifted to the European level. This would send the wrong incentives to banks and investors alike.