 At the same time, firms’ profits, which are the main financing source of investment, have weakened over the past year in the euro area. High corporate taxation relative to other economic areas has also weighed on firms’ profits and caused investment to shift abroad.
A less radical response would be subsidiarisation – where foreign banks have a presence in the form of locally capitalised and governed structures, in which local authorities could intervene in the event of a shock in another country affecting the viability of the parent. That still entails some costs in terms of efficiency, albeit ones that countries might now be prepared to tolerate.