Welcome address by Mr Christian Noyer, Governor of the Bank of France and Chairman of the Board of Directors of the Bank for International Settlements, at the 4th Bank of France- Deutsche Bundesbank Macroeconomics and Finance Conference, Paris, 24 May 2013.
"...This leads me to a couple of remarks on the institutional design of the European Monetary Union. Inspired by the hard lessons of history, the founders of EMU were especially concerned that governments might weaken the union through either debt monetisation or via a sovereign default that would cause financial instability in the area. These concerns were more than legitimate and led to the now famous Maastricht criteria. But one channel was not envisioned at the time: the possibility that a major financial shock could jeopardise fiscal sustainability, through large-scale bail-out programmes. In the case of the euro area, characterised by a high degree of financial integration, ignoring this risk exposed us to major disruptions...."
"...Indeed, we have learned a great deal from the past five years and have made progress at an unprecedented pace. EMU is now firmly on the road to a banking union. To a large extent, this is the very institutional mechanism that was lacking in the first place. Our OMTs have limited the scale of financial fragmentation and have greatly reduced the risk that increasing spreads might end in sovereign defaults. But the euro area needs an institutional framework capable of preventing the recurrence of such crises, essentially by decoupling financial risk from sovereign risk. The banking union thus consists of three major pillars: a Single Supervisory Mechanism, a supranational resolution mechanism, and a unified system of deposit insurance. For now, the first pillar of the banking union is the most advanced, but the other two are also in the pipeline and need to be pursued..."
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