century to consolidate public finances, their position was weak when the crisis struck. still, most countries eased fiscal policy in 2009 as part of concerted european efforts to offset the negative impact of the crisis on growth and employment. this caused further deterioration of public finances, and for several euro area member states it led to an outright sovereign debt crisis. one reason was that the banks ’ non - performing loans eventually became a problem for the public sector, thereby weighing down on government finances. in many countries, fiscal expansion during the boom immediately before the crisis has now made way for extensive consolidation. in other words, fiscal policy has amplified cyclical fluctuations instead of dampening them. therefore, the lesson to us all – from the erm crisis in the early 1990s and recent years ’ financial crisis and sovereign debt crisis – is that it is important to address macroeconomic imbalances in time to prevent systemic risk. the financial crisis and the sovereign debt crisis revealed a clear need to strengthen political cooperation between euro area member states. the most recent crisis has exposed at least two fundamental weaknesses in the eu ’ s economic cooperation. firstly, the pressure for budgetary discipline was not strong enough. secondly, the one - sided focus on fiscal policy was too narrow. a comprehensive view of the member states ’ economic situation is required. it is also evident that price stability alone is not sufficient to ensure financial stability. in recent years, the eu member states have adopted a series of new rules aimed at addressing these weaknesses, including the fiscal compact, which tightens the requirements for fiscal discipline. in addition, the eu member states have adopted rules for surveillance of macroeconomic imbalances, under which the european commission is to monitor whether a member state is building up excessive imbalances. there is now more focus on systemic risk, and a european systemic risk board, esrb, has been set up. in denmark, we have introduced the systemic risk council, whose members were appointed last thursday. although denmark has, in many ways, navigated the financial crisis better than many other countries, we have generally had to learn the same economic policy lessons as others. in denmark, too, fiscal policy in the pre - crisis years reinforced the boom rather than dampening it. among other things, this led to higher wage inflation and weaker competitiveness. as a result of the procyclical fiscal policy, the downturn was more severe than it would otherwise have been. but the underlying fiscal policy was sounder than in the member

the single financial market. vulnerable euro area member states are facing major challenges in relation to both public finances and the financial sector. a banking union does not necessarily address these challenges. the reforms required in these member states will undoubtedly be costly and have real economic implications. it is imperative to find a solution to existing challenges in vulnerable states and banks so as to bring them back on the right track without undue delay. danmarks nationalbank supports the overall vision for a banking union. a banking union makes good sense in an integrated financial market, where financial institutions are free to operate across national borders. the single market for financial services has contributed to strengthening competition and the supply of credit, to the benefit of both the danish financial sector and its customers. integration within the european financial sector increased until 2007, but has since the onset of the financial crisis been decreasing. like the other eu member states, denmark has an interest in a well - functioning single financial market. i see merit in the current discussions on the establishment of a banking union as a mechanism for supporting financial integration in the eu. developing the individual elements of a banking union will be a huge task. if the vision is to be realised, the banking union must comprise at least three elements : ( 1 ) a single supervisory mechanism, ( 2 ) a single resolution mechanism for failing banks, and ( 3 ) a single deposit guarantee scheme. bis central bankers ’ speeches initially, focus has been on establishing a single supervisory mechanism under the auspices of the european central bank in order to solve some of the problems currently faced by some european banks. the single supervisory mechanism is primarily aimed at euro area banks, but non - euro area member states may opt in. the framework conditions will differ, depending on whether the member state in question has adopted the euro. at present it looks as if non - euro area member states will be able to participate in the single supervisory mechanism on an equal footing with euro area member states. this is positive. the set - up with a single supervisory mechanism can enhance the credibility of financial supervision in the eu, especially in the euro area, and will contribute to financial stability, which will also be an advantage for the danish economy – whether or not we decide to join. the commission is expected to table proposals for the remaining elements of the banking union later this year. the content is as yet unknown, and it is difficult to predict the final set - up. the distribution of costs is a politically sensitive issue, not least in terms of whether legacy