The paper reviews the debate on the completion of the institutional architecture of the European Economic and Monetary Union (EMU) following the Greek sovereign debt crisis. Significant progress has been made towards greater integration, including via the first two pillars of the banking union and the establishment of the European Stability Mechanism. Moreover, the fiscal governance framework was overhauled by stricter rules and more powers were transferred to the supranational level to influence national budgetary policies.
The paper argues that these major advances in risk reduction have not been matched by parallel progress in risk sharing: this asymmetry leaves the EMU vulnerable to sizeable macro-financial stability risks and may undermine its longer-term viability. Priority needs to be given to closing the gap between risk sharing and risk reduction as, at the current juncture, the former is in and of itself a conduit for the latter.
