Admittedly, Europe has already taken bold steps to increase its capacity to detect and handle crises. During the crisis years, two new intergovernmental treaties were introduced, paving the way for strengthening economic and fiscal stability by creating the European Stability Mechanism. This key instrument provides financial assistance to countries in difficulties and, as recently agreed, may also act as a fiscal backstop in banking resolution processes. New procedures for the surveillance of imbalances (the Macroeconomic Imbalances Procedure) and the reform of the Stability and Growth Pact were also agreed. In the financial arena, important reforms, such as the creation of the Single Supervisory Mechanism and the Single Resolution Mechanism for significant banks, were implemented. On top of this, the impulse of monetary policy, with a substantial broadening of the ECB’s monetary policy toolkit, was also a crucial factor that helped cope with the Euro crisis and its negative impact on price stability. Attempts to draw comparisons between the governance framework in the United States and the European Union should be mindful that the US currency union has had 150 years to evolve, while the European currency union is still rather young. Nonetheless, it is precisely with this long-term perspective that we have to judge EMU. All in all, while acknowledging the relevance of the various institutional changes made, a broad consensus points to the fact that additional reforms are needed in the EU’s architecture, and in particular in the architecture of the European Monetary Union.

Such a scheme would have a strong impact on trust and contribute to increased risksharing, insofar as it is designed as a fully fledged mutualised EDIS. Contributions to EDIS taking into account bank-specific risks could limit the risk of permanent crosssubsidisation and would also help deal with the sovereign-bank nexus. This would contribute to reducing the link between national governments and banks and preventing destabilising cross-border flights to safety in the event of difficulties. Moving towards a Capital Markets Union The other key initiative to increase the integration of Europe’s financial markets and to facilitate risk-sharing capacity in EMU is the Capital Markets Union project. The project aims at providing firms with the same funding opportunities, and households with the same saving opportunities, irrespective of the member state in which they are located. 7/11  However, inconsistent regulations, as well as varying market practices and industry standards across EU countries, prove to be key impediments in developing a truly pan-European capital market. As a result, country savings and investments are still highly correlated, a fact known as the Feldstein-Horioka puzzle. This correlation has subsided over time in the case of the European Union but is still sizable, which is more bewildering in the case of the currency union. A departure from perfect capital mobility has important economic implications, as it might be leading to lower aggregate investment, a higher home bias in investment decisions and a lack of portfolio diversification. The Capital Markets Union project has received a stronger push over the last few months.