financial integration made impressive progress in some markets, such as the bond markets, stock markets and money markets, but advanced very modestly in other areas, particularly in the case of the banking system. in retrospect, this may seem surprising, since four - fifths of private sector financing comes from the banks. the diversity of supervisory regulations and practices have made regulatory arbitrage possible and, in some cases, it has even led to the emergence of protectionist barriers across different domestic financial markets. a positive initial response to the financial crisis has been the active role played by the commission in seeking to ensure that public support to financial institutions becomes subject to conditions that limit the distortions to fair competition within the single market. another important milestone leading to a pan - european approach to supervision has been the creation of the european systemic risk board ( esrb ) to strengthen macroprudential supervision within the eu as a whole, which has filled one of the most acutely felt institutional gaps during the crisis. until recently, however, under the umbrella of the same legislation, we have witnessed regulatory competition to attract business, the oversight of cross - border groups has suffered from a lack of coordination and the compliance process has been fragmented along national borders. for this reason, it is difficult to overstate the importance of the commitment of eu institutions to a “ single rulebook ”. according to the logic of this approach, which pursues a growing harmonisation of supervisory standards, once the european banking authority ( eba ) or the other european supervisory authorities ( esma and eiopa ) have developed bis central bankers ’ speeches technical standards, once adopted by the commission, these standards will become legislation directly applicable to entities, with no need for national transposition. the potential of the “ single rulebook ” is enormous, although resistance to the concept of maximum harmonisation remains significant. in the area of crisis prevention, the difficult discussions surrounding the definition of capital, or the application of new liquidity requirements, among other basel iii proposals, will have to be followed closely. but perhaps the most demanding challenges are in the field of crisis management and the resolution of financial institutions that are both systemically important and which have significant cross - border operations. a legislative proposal from the commission is expected in the coming months, detailing common tools for monitoring and resolution as well as principles of cooperation and mediation applying to cross - border institutions, and the role of the eba in these processes. if we add to these important developments the possibility

and neither has the framework for coordinating fiscal policies worked well, not to mention the complete lack of coordination of macroeconomic policies, influencing competitiveness. the greek crisis and its contagion to other vulnerable countries have been the irrefutable proof : no matter how small the country, its competitiveness problems and imbalances can have a systemic impact. in this context, the absence of federal - type shock absorbers has resulted in a loss of market confidence in sovereign paper as a risk - free asset, and even in the fungibility of bank money, which has experienced episodes of flight to banking systems located in countries perceived to be stable. gross political mistakes, such as the “ deauville doctrine ” on private sector involvement in debt restructuring or the public debate about a country possibly abandoning the euro, have worsened the situation. all too frequently, the common monetary policy has been left to play its role in resounding solitude. it is clear today that the road we must travel to support the stability and to reaffirm the irreversibility of the euro cannot get round building the institutions of a political federation overnight. the euro area needs to follow a different path to ensure a stable functioning of monetary union to compensate for the absence of these institutions, without excluding the possibility that the process of european integration may also lead to federalisation in the medium to long term. this approach to the completion of the euro project should focus on four key pillars of stability : economic governance, crisis management, financial regulation and supervision, and monetary policy. 4. 1 economic governance the first pillar should be to fundamentally strengthen governance procedures to prevent and avoid the emergence of imbalances. with fewer institutions capable of providing stability and mitigating crises when they arise, we must be more effective in preventing the emergence of serious imbalances. this process has led us to strengthen fiscal policy rules and to create mechanisms for monitoring and correcting macroeconomic imbalances and competitiveness ( “ six pack ” legislation, the treaty on stability, coordination and governance and “ the fiscal compact ”. ) on the fiscal side, the reform of the stability and growth pact ( sgp ) and the new “ fiscal compact ” are specifically designed to detect and correct the fiscal imbalances at an early stage. one key aspect of the reform of the pact has been the strengthening of its “ preventive arm ”. for example, sanctions will now be possible not only in cases of non - compliance with the 3 % limit, but