There are three main mechanisms that risk-sharing can take between member states in a political and economic area. First, countries can share risk via cross-ownership of productive assets, a mechanism facilitated by developed capital markets. Second, a system of taxes and transfers can serve as a vehicle for further income smoothing.
Third, member states can smooth consumption by adjusting their asset portfolios, by lending and borrowing in international credit markets, for example. 8  European Commission (2015), “Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions – Action plan on building a Capital Markets Union”, COM (2015) 468 final, September.