Renationalising savings may provide short term protection but in the longer term it would be harmful to growth and jobs. Diversification Turning to diversification, we see a similarly incomplete picture as for allocation. Most studies on risk-sharing within the euro area suggest that financial markets in the euro area do not provide much cross-border insurance.
Indeed, a recent study by Bruegel found that, during the crisis, credit and capital markets absorbed only about 10% of the shock to GDP in net terms.7 By contrast, in the US it has been estimated that capital and credit markets smooth around two-thirds of a given shock.8 What might be the reason for the lack of risk diversification in the euro area?