Having in place a credible single supervisor, which is now agreed, should encourage the gradual reintegration of financial markets, which will improve the transmission of the ECB’s monetary policy. On top of this, an effective single resolution mechanism and a fund filled by levies from the industry should kick start a clean-up of banks’ balance sheets, preventing “zombification” and unblocking new lending.
That is why this is the key challenge for this year. Second, the new measures we have in place for Fiscal Union could do a lot to bolster confidence. By limiting the “wiggle room” for future governments, the fiscal compact should help anchor medium-term expectations about fiscal responsibility and debt sustainability.