Moreover, within the euro area there would no longer be a host or a home supervisor, and this arrangement should ensure that cross-border allocation of capital and liquidity would be primarily driven by business considerations. Banks’ funding costs should start to indicate again their individual creditworthiness, without the premia that reflect their sovereign’s fiscal position or redenomination risk. A common resolution fund would decrease the too-big-to-fail problem and thus reduce moral hazard; furthermore, it would spread the burden of resolution rather than saddling any single sovereign with it. Finally, depositors would not need to consider shifting their funds across the continent in search of a safe haven, as all banks would offer the same insurance coverage. Of course, as with all structural changes and new institutional constructions, setting up a fully-fledged banking union will take some time. The most urgent component of the banking union is in my view the SSM, which should enter into force as early as possible in 2013 to allow the ECB to prepare for its new tasks, with full accountability and a governance structure that strictly separates monetary policy from supervisory decisions. I won’t go into the details of the current proposal put forward by the European Commission. For this, since we are at a research-oriented conference, I would refer you to the report 2 on the European Commission’s banking union proposals which has just been published by the Advisory Scientific Committee of the European Systemic Risk Board.
In the long term, wouldn’t “Grexit” risk putting on record that a country can, in fact, leave the euro area, and thus that the euro is not irreversible? If Greece had to leave the euro area, that would risk casting doubt on the nature and functioning of the monetary union. That would create fragility. It would be a tragedy for Greece and, moreover, for its economy. It would be a challenge that Europe would have to rise to as quickly as possible, by substantially reinforcing its institutional framework. The stability of the euro area depends on a balance between responsibility and solidarity. In order to be stronger and more convincing, concrete initiatives are required to reinforce these two dimensions. What would you say to the Greeks to convince them not to leave? It is vital to put Greece back on a growth path, to reach a consensus in order to recreate a viable economic model for the country. Total factor productivity in Greece grew at a rate of only 1% per year between 1981 and 2014, against 2% per year in the euro area, and that happened despite the sizeable transfers Greece has benefited from. To achieve this, the Greek economy must remain within the single European market and be able to rely on its institutions. What’s more, were Greece to leave, austerity would be far worse. The country would no longer benefit from the solidarity of the euro area, which has given it the time to make the necessary adjustments.