as a single geographical area in the supervisory methodology in future. finally, there is the question of how to design fiscal risk - sharing mechanisms for emu, while taking into account emu ’ s unique nature. in existing federations the stabilisation function of the central budget is usually a by - product of redistribution via large tax transfer systems. at this stage of european integration, it is clear that any politically acceptable euro area fiscal capacity will be modest in size. so, the key question for the economics profession is whether it is possible to remove the link between the stabilisation function and the redistributive function, allowing for a central budget of moderate size to have a meaningful macroeconomic stabilisation effect. if this were possible, such a central budget could help monetary policy, especially in times of deep recessions when nominal interest rates may reach their effective lower bound. the european commission set out some proposals in its reflection paper published on 31 may – these require further study. conclusion let me conclude. the answer to the question of today ’ s conference – “ how much federalism? ” – is not easy. yet, speaking as an economist, i think it is likely that the right answer lies on the side of “ more than today ” rather than “ less than today ”. monnet famously said that “ europe will be forged in crises, and will be the sum of the solutions adopted for those crises. ” he was certainly right that further integration will proceed incrementally rather than in a big bang. what i hope, though, is that europe will not be forged in crises only. 3 / 4 bis central bankers'speeches significant progress towards a genuine economic and monetary union has been achieved in times of acute crisis. today ’ s improved economic environment offers a window of opportunity to demonstrate that progress is possible in quieter times, too. i thank you for your attention and hope you have productive discussions at today ’ s conference. 1 standard eurobarometer 87, spring 2017 ( fieldwork : may 2017 ). 4 / 4 bis central bankers'speeches

there are several arguments in support of the view that the two channels complement each other – but only if the right powers are matched at the federal level. 2 / 4 bis central bankers'speeches for example, it is clear that the banking union would not fully achieve its goal of severing the toxic link between banks and national governments without a central fiscal backstop for the alreadyexisting single resolution fund, as well as for the european deposit insurance scheme that is still under discussion. at the same time, fiscal backstops generally raise legitimate questions about incentive structures to protect taxpayers, which need to be addressed in parallel by appropriate fiscal governance at the federal level. the process of building the banking union also illustrates how important it is to reach an appropriate degree of federalism to achieve the objective of a stable and integrated financial system that supports the european economy. ideally, in a genuine banking union banks would operate in the single market just as they operate in their domestic market. this is essential to reap the full benefits of financial integration. the country in which a bank is headquartered should be irrelevant. but, in practice, it remains relevant for as long as the consequences of potential bank failures are still predominantly national. the irrelevance of a bank ’ s headquarters, therefore, depends on the institutional structure of the banking union. let me take one very specific example to illustrate my point. the banking union is not yet considered a single geographical area in the supervisory methodology applied to globally systematically important banks. these g - sibs are subject to additional capital requirements, which are calibrated on the basis of a cross - jurisdictional indicator. this indicator reflects the fact that failures of global banks are more difficult to handle owing to coordination difficulties and cross - border spillover effects. when the responsibility for banks is shared, additional capital buffers for cross - border activities lose their raison d ’ etre. a single set of harmonised prudential rules for all banks in the european union would not, in and of itself, be sufficient for the eu to be considered as a single geographical area. but the single rulebook, the existence of a single supervisor, the single supervisory mechanism ( ssm ), of a single resolution authority, the single resolution mechanism ( srm ), and of a common backstop, the single resolution fund ( srf ), when taken together, have equipped the banking union with all the features of a single geographical area. this should mean that the banking union is treated