First, a large part of the fragile fiscal position in these economies is attributable to expenditure on entitlements due to an ageing population without commensurate increase in revenues and lack of growth- enhancing structural reforms. In this process, the public sector structure has become bloated.
To strengthen the banking union’s immune system, we need to end the preferential treatment for sovereign debt. Sovereign bonds have to be adequately risk-weighted, and exposure to individual sovereign debt should be capped, as is already the case for private debt.