Bringing Stability to Europe:
Why Europe needs a banking union
The Finnish Institute of International Affairs
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The European sovereign debt crisis is the result of capital
flows across the single market.
that such capital flows could unleash market speculation was known from the
start; indeed, the single currency was created to remove the threat of exchange
is that the architects of the single currency did not consider the impact of
capital market integration on the banking sector or on the relationship between
banks and national governments.
markets lost confidence in the security of their cross-border investments,
investors began to pull back their capital and the internal market for
financial services started to disintegrate.
The creation of a banking union is part of the solution. However, the euro area also needs a
common ‘risk-free’ asset to use as a safe haven in times of crisis.