This would be an important step towards breaking the vicious circle between banks and sovereigns; and it would be a further step towards reinforcing the foundations of monetary union. Private risk-sharing does not have to be exclusively via the credit markets and not solely in relation to the public sector. Investors can also help to share risks via the equity markets. Take a German company as an example. If the German economy is hit by a shock, this company will probably be affected too. If its owners, the shareholders, are spread across many countries, the company’s losses will be spread likewise. The more cross-border financing companies have, the less the national economy is affected by any shock and the faster it can recover. In the United States, for instance, this kind of risk-sharing works: studies show that integrated capital markets in the United States absorb 40% of the cyclical variations between the states. 4 This speaks in favour of the European capital markets union project. And also for, as part of this project, a greater harmonisation of equity markets in particular. I admit that this is an ambitious goal as insolvency law and company law, for example, would need to be further harmonised. This step would remove a few barriers to a single European capital market. Closing remarks Ladies and gentlemen, At the beginning of my speech I mentioned the Eurobarometer survey which indicated that 70% of people in the euro area want the euro as the single currency.
Against this background, the founders of the monetary union put in place a rulebook that seeks to ensure sound fiscal policy: the Stability and Growth Pact. We all know that these rules were not particularly effective. They have therefore been strengthened since the crisis and complemented by a better control of macroeconomic imbalances. But even the best rules only work if they are respected. And even the best rules may not prevent a country from experiencing economic shocks. ... but union also means community For cases where these shocks are too big to be absorbed at national level, a monetary union needs mechanisms to spread the ensuing costs over more than one pair of shoulders. And this brings me to the second question: how can risks be shared at European level without a transfer of risk occurring which distorts the incentives for the individual Member States? I mentioned this earlier: during the crisis, risks were shared especially by way of mutual guarantees and thus via national budgets. However, such a sharing of fiscal risks can reduce the incentives to pursue sound fiscal policies. In order to counter this disincentive, both the risks and the monitoring would therefore have to be shared at European level. So the Presidents of the European institutions 3 – including the ECB – are calling for stronger fiscal integration leading to a fiscal union. For the moment, I see little political will to create a European fiscal union. Fiscal risk-sharing, for the time being, therefore remains a problematic issue.