This would move the euro area closer to the type of financial union we see in federations like the U.S. or Switzerland, where banking sector problems are dealt with at the federal level and have no implications on the finances of the federated units. Of course, this must be accompanied by appropriate incentives for banks to limit moral hazard. Policy conditionality should include restructuring plans in line with EU state-aid rules, and principles for orderly resolution of non-viable institutions and for limiting the use of public money. Second, the commitment to establish a single supervisor is critical insofar as it facilitates direct recapitalisation. But it also has positive effects in its own right. Given appropriate powers, a single supervisor would produce greater transparency in national banking sectors and reduce regulatory capture, thereby increasing investor confidence. In addition, it would support financial integration by “Europeanising” supervisory priorities. For example, some supervisory actions we have seen during the crisis that have caused the single market to fragment, like requiring banks to match domestic assets and liabilities, would no longer be anticipated. In terms of design, this supervisory mechanism should have a clear euro area dimension, while remaining fully compatible with the single market and EU-wide supervisory harmonisation. The ECB stands ready to play a role, provided that there is no contamination between monetary policy and financial stability. Of course, extending the remit of the ECB should come with higher standards of democratic accountability.
For instance, the IMF projects the aggregate euro area deficit for this year to be just over 3% of GDP, compared with around 8% in the U.S. and almost 10% in Japan. The equivalent figures for gross debt are around 90% of GDP in the euro area, compared with 106% in the U.S. and 235% in Japan. The right response to this discrepancy between fundamentals and perceptions is not defeatism. It is to fix the institutional flaws that facilitate it. Again, the European Council took an important step in this direction at the recent summit. Building on the report presented by the Presidents of the European Council, Commission, Eurogroup and ECB, it called for a specific and time-bound roadmap for the achievement of a genuine Economic and Monetary Union. This roadmap will be presented by the end of 2012. This is a very important development, for two reasons. First, it sends a clear signal of Member States’ commitment to the euro and to making EMU work. This should help remove  BIS central bankers’ speeches  3  investor concerns about the future integrity of the euro area. Second, the report presented by the Four Presidents is far-reaching and comprehensive – it has been designed to address the key challenges facing EMU in all relevant policy areas. It therefore proposes work on four parallel tracks: 1. The first is a financial union, with a single framework for supervising and resolving banks and for insuring customer deposits.