This is also evident in the KfW-ifo-Mittelstandsbarometer. Germany is an open and integrated economy, so it is not surprising that a slowdown in the rest of the euro area has an impact here. Intra-euro area trade amounts to around 40% of  BIS central bankers’ speeches  1  German GDP. And around 65% of foreign direct investment in Germany comes from other euro area countries. But it is less often noted how problems in the wider euro area affect the financial situation in Germany. It is the weak euro area economy that is keeping interest rates here at very low levels. And it is the crisis of confidence in some euro area countries that is causing safehaven flows of money into Germany, depressing interest rates even further. This highlights the fact that countries in a single currency area are connected like communicating vessels. A change in one vessel creates an equal change in all the others. As interest rates rise in countries in difficulty, they fall in strong countries like Germany. As TARGET2 liabilities increase in some countries due to capital outflows, TARGET2 claims increase in Germany due to capital inflows. Financial developments in Germany are the mirror-image of financial developments in the rest of the euro area. And this means that measures to ensure the stability of the euro area as a whole will also be to the benefit of Germany. So let me now turn to the actions being taken by governments to achieve that goal of stability.
Financial union is essential in a single currency area where cross-border capital flows can lead to credit booms and other imbalances – and where the negative effects of a bust can spread rapidly to other members. One essential part of financial union is a single banking supervisor. As you know, the European Commission has recently proposed that the new supervisor should be based at the ECB. This is important to ensure consistency across the euro area and to prevent regulatory capture. Day-to-day tasks, however, would remain with national supervisors who have the competence and resources to implement them. But financial union does not have to imply the pooling of deposit guarantee schemes, an issue that I know is of concern in this country. Organising and funding deposit guarantee schemes can remain a national responsibility, with comparable effectiveness. In the longer term, all four pillars are equally important. They are the bedrock for the enormous potential of the single currency for Europe’s citizens. Completing economic and monetary union would give citizens greater security against any future crisis. It would create the foundations for sustainable growth and employment. For all citizens of the euro area, it is therefore essential that Europe’s leaders stay on course. Thank you for your attention. BIS central bankers’ speeches  5