The director general of the bailout fund of the eurozone (ESM), Klaus Regling, does not believe that the zone needs full fiscal union. "The euro area works well, and there is no need for a full political nor a full fiscal union", he said at a conference held by weekly magazine The Economist in Cyprus, on Tuesday 1 November.
"The one problem the EMU still faces is the low degree with which asymmetric economic shocks are shared between countries", Regling went on to explain.
He believes that the main priority is to complete Banking Union, first through the backstop for the Single Resolution Fund, the financial arm of the 'resolution' plank of this Union, to "make it more credible for markets". Negotiations between member states on this point will start once all European countries have implemented the directive on bank recovery and resolution (BRRD- 2014/59). At the most recent Ecofin Council, held in early October, only Belgium had still to do so. Secondly, a European deposit insurance scheme (EDIS) "is needed". "This will not be easy because existing national schemes are very different and because some countries must sort out legacy problems first".
Then, banks must reduce their non-performing loans and improve their profitability: this will involve reducing costs and the number of branches, and making full use of financial technology solutions ('fintech'). After that, we must move towards a Capital Markets Union by harmonising fiscal and solvency rules across Europe, he said.
However, a limited budgetary capacity for the eurozone could help. "This could be done without permanent transfers or debt mutualisation", he concluded. (Original version in French by Élodie Lamer)