Eurozone resilience and the promise of market integration

The weakness of the Eurozone architecture became visible during the global financial crisis and other calamities over the last several years remain unresolved. This chapter makes the case for financial integration as a way forward to advance the stability of the monetary union. This is to facilitate ‘private risk sharing’ to stabilise the system against external shocks. Beginning with the sovereign debt crisis, policymakers have implemented measures to support fiscal (public) risk-sharing mechanisms between Member States. However, these steps have encountered political backlash against budgetary constraints, austerity and transfer payments. As an alternative, this chapter argues that stabilisation should better come through private risk sharing, involving stronger integration of financial markets across the Eurozone with the ultimate goal of providing a private, market-based ‘insurance’ mechanism against future external shocks. This chapter develops a range of concrete initiatives to implement this strategy.