benoit cœure : the three dimensions of the euro area crisis speech by mr benoit cœure, member of the executive board of the european central bank, at the asia - europe economic forum conference on “ european troubles, asian worries ”, brussels, 21 january 2013. * * * i wish to thank federic holm - hadulla for his contributions to this speech. i remain solely responsible for the opinions contained herein. ladies and gentlemen, dear friends, it is a great pleasure to speak to you tonight. i would like to express my appreciation to the asia - europe economic forum for its collective thinking on our common economic challenges. the economic policy debate over recent years has been preoccupied with the “ european troubles ” – as the conference title indicates. it is certainly encouraging that the focus of this debate is starting to shift from : “ how much worse does it get? ” to “ is it finally getting better? ”. there are signs of convalescence and “ re - integration ” in european financial markets. yet, these are revertible and should by no means induce complacency. as christine lagarde warned last week : “ we stopped the collapse, we should avoid a relapse, and it ’ s not time to relax ”. this holds true for analysts and policy - makers alike. there should be no “ relapse ” in thinking about the crisis. to ultimately succeed, policy action must be based on a comprehensive and principle - based diagnosis of the problem. and to obtain such a diagnosis, one sometimes has to step back and look at the overall picture. that is what i will do in today ’ s speech. to this end, let me start with the following basic question : what is the exact nature of the crisis that we have been discussing for so long? the use of the term “ crisis ”, in the singular, is, in itself, somewhat misleading : all crises are combinations of several distinct phases and dimensions which all require their own specific response. the euro area crisis has often been described as the combination of a sovereign debt crisis, a banking crisis, and a macroeconomic crisis. 1 here, i will take a different perspective and argue that some key dimensions of the crisis are not specific to the euro area. i see three key dimensions of crisis that we have to deal with. the first one takes the form of a classic debt deleveraging cycle. this dimension is probably the most visible materialisation of crisis but it is

interests of domestic banks only. over time, the banking union is envisaged to lessen the role that national interest play but, in the short term, the banking union may exacerbate the conflict between the two roles. the ecb, as an established and strong european institution, is well placed to tackle the emergence of national interests in supervision. it is therefore imperative that the powers are concentrated at the ecb. the structures and the processes of the ssm must support european perspective and interests. so far, all the developments seem to point to this direction. the fact that the ecb can, if deemed necessary, take over the direct supervision of any bank operating in the banking union area underlines that the ecb is fully in charge of the ssm. bis central bankers ’ speeches banks ’ perspective on ssm are there any benefits for banks? from the banks ’ perspective, the introduction of the ssm means numerous changes. i will mention here only a few of them. for a cross - border bank, operating in multiple countries within the banking union, the single supervision effectively simplifies its contacts with the authorities. it will need to work with a single supervisor and operate following a single rulebook. this implies lower costs for the bank in complying with the regulatory requirements. common rules and methods of supervision also have a broader impact on competition among banks, not only for international but also domestically oriented banks. the banks are treated equally in supervision and regulatory capture can be fully avoided, thereby ensuring a level playing field. in general, i believe that the ssm will become one of the leading banking supervisors in the world, applying the best possible tools for supervision – and developing such tools also for the benefit of other supervisors. bank resolution the second pillar of the banking union is the single resolution mechanism ( srm ), which is the necessary complement to the single supervisory mechanism. the srm creates a single authority, which is responsible for swift and orderly resolution of cross - border banks in the euro area and participating member states. the srm is complemented by the single resolution fund which will be financed via levies on the banking sector itself. the fund will start from national compartments but it will gradually, in eight years, mutualise to become a truly single european fund. underlying the new regime is the bank recovery and resolution directive ( brrd ) which dramatically changes the culture. it ends the era of the bail - out and moves us to the culture of the bail -