As long as the basic willingness to share fiscal sovereignty is lacking, we could and should then agree that sovereignty will be relinquished if a Member State does not comply with the jointly agreed objectives, such as the deficit and debt limits. At the same time, it’s necessary to strengthen national ownership and private risk-sharing. From an economic perspective, it would seem obvious: if a state gets into financial difficulty, why shouldn’t the state’s creditors bear the losses? In reality however, this is not so easy to implement. Bear in mind how long it took to arrange that for the resolution of banks their creditors will also be liable in the future. Where does the problem lie? It lies in the possible contagion effects and in concerns about financial stability. The creditors of countries are in many cases the domestic banks. A state bankruptcy with a bail-in could therefore trigger a financial crisis. 2  Masuch, K.; Moshammer, E.; Pierluigi, Beatrice (2016), Institutions and Growth in Europe. Centre for European Policy Studies (CEPS Working Document No. 421). 3  “Completing Europe’s Economic and Monetary Union”, presented by J.-C. Juncker, in close cooperation with D. Tusk, J. Dijsselbloem, M. Draghi and M. Schulz, 22 June 2015. BIS central bankers’ speeches  3  This problem is intensified by the fact that the regulation creates incentives for banks to hold government bonds.
Many countries are now on the right track. Ireland, Spain and Portugal, for example, have implemented a series of reforms; they have become more competitive and their economies are recovering. And yet, in some euro area countries, unemployment remains very high, especially among young people. In addition, many countries still have large public deficits and high levels of debt. So further reforms are necessary here. The same applies to goods markets and the general business environment. In many Member States bureaucratic hurdles have to be overcome in order to start a business, and not only in the crisis countries. Removing such administrative barriers is much  2  BIS central bankers’ speeches  less expensive than national recovery plans, and can contribute significantly to sustained growth and increasing prosperity. 2 It is all the more worrying that the OECD in its recent “Economic Policy Reforms” report notes that particularly in the euro area countries the pace of reform is slowing. It would be disastrous if necessary reforms cannot be implemented or, if implemented, reforms were even to be withdrawn. That would slow down, or even totally impede, the necessary economic upswing. Central banks would then come under pressure to counteract this by pursuing an exceptionally loose monetary policy. A stable monetary union rests on the shoulders of individual Member States. Sound economic and responsible fiscal policies at national level are an essential basis for a stable monetary union.