have asymmetric effects due to different levels of public debt, as we saw during the crisis. consequently, imf analysis finds that, while business cycles have become more synchronised during the euro period, their amplitude across euro area countries has diverged since the crisis. so, to address this, there needs to be insurance across euro area countries, and such insurance is also likely to be highly effective, perhaps even more so than in the us. progress in this area is much less advanced, however. only around 25 % of local shocks are smoothed through financial markets in the euro area. [ 24 ] we still do not have in place the esm backstop for the single resolution fund and a european deposit insurance scheme. and there has been little meaningful progress on fiscal policy coordination. long ago we reached an impasse on key issues which is being perpetuated by two alleged dichotomies. the first is the notion that private and public insurance are substitutes, and so if the euro area focuses on deepening private risk - sharing, greater public risk - sharing will not be required. but this misunderstands how private insurance develops in the first place. it emerges from deep and resilient financial integration, especially of retail banks, and that only arises in the shelter of public risk - sharing, such as strong backstops and deposit insurance schemes. the reason is that public insurance guarantees that costs will be shared in the event of bank failures, which is crucial for national authorities to let capital and liquidity flow freely within the monetary union. without insurance, on the other hand, there will always be an incentive to ring - fence in order to safeguard national balance sheets, which blocks effective risk sharing. [ 25 ] us banks, for instance, rely on intra - group funding to respond to local shocks and manage credit growth, allowing them to keep their lending more stable over the cycle. similarly, without public insurance, banks have a weaker business case to engage in cross - border consolidation. some of the key benefits of operating multinationally – such as the ability to optimise liabilities by funding loans in one country with deposits in another – cannot be attained if there are different deposit guarantee schemes across countries, and different creditor hierarchies in an insolvency scenario. this is one reason why cross - border banking m & a activity within the euro area is currently at historical lows. in any event, private risk - sharing based on diversification can break

kilic celik, s., koloskova, k., and poplawski - ribeiro, m., “ gone with the headwinds : global productivity ”, imf staff discussion papers, no 17 / 04, 2017. [ 41 ] see coenen, g., “ zero lower bound : is it a problem in the euro area? ”, ecb working paper series, no 269, september 2003. [ 42 ] see blanchard, o., “ public debt and low interest rates ”, aea presidential lecture, january 2019. [ 43 ] de jong, j., ferdinandusse, m., funda j., and vetlov, i., “ the effect of public investment in europe : a model - based assessment ”, ecb working paper series, no 2021, february 2017. [ 44 ] as a percentage of potential gdp. [ 45 ] see draghi, m., “ moving to the frontier : promoting the diffusion of innovation ”, welcome address at the joint conference by the ecb and the mit lab for innovation science and policy, 13 march 2017. [ 46 ] rachel, l. and summers, l., “ on secular stagnation in the industrialized world ”, nber working paper, no 26198, 2019. [ 47 ] adjusted for depreciation. [ 48 ] european fiscal board, “ assessment of the eu fiscal rules with a focus on the six and two - pack legislation ”, august 2019. [ 49 ] de jong et al ( 2017 ), op. cit. if the investment in public capital is not productive, then the net effect on gdp is zero after the stimulus ends. [ 50 ] mourougane, a., botev, j., fournier, j. - m., pain, n. and rusticelli, e., “ can an increase in public investment sustainably lift economic growth? ” oecd economic department working papers, no. 1351, 2016. [ 51 ] alloza, m., cozmanca, b., ferdinandusse, m. and jacquinot p., “ fiscal spillovers in a monetary union ”, ecb economic bulletin, issue 1, 2019. copyright 2019, european central bank