And although it moved on a rising trend during the precrisis years as a result of the increase in wholesale financial integration, it subsequently fell, remaining at levels well below those observed in the United States. Limited development of equity markets in Europe, prevailing national investment bias in the Euro area relative to that in the United States, and a greater concentration of cross-border investment in a small number of Member States in Europe are some of the reasons explaining such divergent reactions between these two financial areas. The budgetary channel is practically non-existent in the euro area. By contrast, in the United States, estimates show that the public channel helps soften between 10% and 20% of adverse shocks in a particular State. As a result, the credit channel is ultimately the sole means for cushioning shocks across Euro Area countries. However, the credit channel is not enough to compensate for the weakness of the other channels. This means that, on average, between 40% and 60% of an adverse shock impacting a Euro Area country translates directly into a decline in that country’s consumption. These figures are double the impact calculated for the United States. Besides the need to strength risk-sharing mechanisms to address macroeconomic shocks, achieving key targets such as controlling the levels of public debt and reducing the sovereign risk nexus (often cited as the most fundamental original flaws of the euro design) do not only depend on introducing policies of pure fiscal discipline.
If such an instrument had been in place since 10/11  the inception of the Euro, most countries (and not only the usual suspects) would have benefited from the scheme at one point, without permanent redistribution across countries. Finally, the creation of a common safe asset for the euro area should be explored further. The normal operations of markets and financial intermediaries require a broad spectrum of assets with sufficient liquidity and minimum counterparty risk. This situation is amplified in turbulent times, as investors react to increases in uncertainty by accumulating assets with a low level of perceived risk. Within the EMU, the volume of such assets is insufficient, as only the debt of a small group of countries is perceived as riskless, thereby giving rise to scarcity and financial fragmentation. An improvement in the fiscal position of countries might help expand the number of available safe assets. But a common safe asset will have additional benefits, by contributing to reducing the link between national governments and banks; preventing destabilising cross-border flights to safety in the event of difficulties; and, more generally, promoting a more stable and equitable provision of safe assets for the EMU as a whole. In sum, there is a pressing need to improve the functioning of the EMU before the next crisis hits. Increasing financial integration and introducing fiscal instruments to improve macroeconomic stabilisation are of the utmost importance in achieving this goal. Thank you for your attention. 11/11