The Schuman Declaration paved the way for a new era of peaceful cooperation between the two nations, as well as with other countries. A new type of Europe began to emerge from the wasteland of World War II. What was about to take shape was indeed “revolutionary” – because the fathers of a united Europe moved beyond the concept of the nation-state with a jealously guarded sovereignty. They placed coal and steel production – the two industries which were crucial to the war effort – under a new supranational authority. Six European countries – France, West Germany, Italy, the Netherlands, Belgium and Luxembourg – took this first and important step towards closer  BIS central bankers’ speeches  1  cooperation in 1951. A process towards creating durable conditions for peace in Europe had been set in motion. The six founding countries came to realise that there were substantial benefits in closer cooperation and agreed to deepen it further. In 1957, they signed the Treaty of Rome, which created a customs union and established the European Economic Community. Its overall aim was to promote harmonious economic development, raise living standards and develop a common market. However, the founding fathers of Europe saw European integration as more than just an exercise in economic cooperation. They shared a larger vision for the future of Europe. Thus, in the Treaty’s preamble, the signatories committed to lay the foundations for an “ever closer union” among the peoples of Europe. This commitment has become the leitmotif of the continent’s integration.

First and foremost, euro area countries should regain their ability to save money for a rainy day by adhering to their fiscal commitments in the new framework of the Fiscal Compact. They have already agreed to limited mutual insurance through the EFSF/ESM. A centralised fiscal capacity could be considered too, provided it is not the basis for permanent transfers but is used to promote market integration and better resilience to economic shocks. For instance, a euro area unemployment insurance scheme could be set up, which would support much-needed cross-country labour mobility. Indeed, an integrated economic policy framework is needed to boost economic integration and ensure that unsustainable policies do not jeopardise the stability of EMU. The framework should provide for a better enforcement of commitments to structural reforms, i.e. measures to increase a country’s competitiveness and its capacity to adjust to economic shocks. Structural reforms make EMU more robust. In addition, an integrated financial market framework is required in order to break the bank-sovereign nexus that threatens financial integration. This is another important element to make market-based risk sharing work effectively. While many euro area banks have benefited from the single currency, and significantly expanded their European business activities, they are still supervised at national level. Financial fragmentation, as I described above, has led to the perception that banks’ liabilities, even though they are nominally the same, are in fact different from one euro area country to another. This is not acceptable: the currency union has thus to be complemented by a banking union.