Monetary union, capital markets union, banking union – a triad for Europe’s prosperity and resilience Speech delivered at the 23rd German Banking Congress

Check against delivery.

1 Words of welcome

Dear Mr Sewing,
Ladies and gentlemen, 

Thank you very much for inviting me to the 23rd German Banking Congress. As such a diverse conference programme draws to a close, it may be necessary to “zoom out a little further” in order to say something new. That is a challenge I’m happy to accept! 

So let us begin not in the here and now, but 200 years ago in Vienna. Ludwig van Beethoven oversaw the première of his Ninth Symphony. The composer had been working on this opus for nearly a decade. And this under extremely difficult circumstances: Beethoven had virtually gone deaf. He still managed to complete the symphony, though. And what a success it was! 

Schiller’s Ode to Joy, set to music in the fourth movement, is now the European anthem. When it sounds, two things resonate: the European values of coexistence in peace, freedom and solidarity; and the recognition of what can be achieved with the firm will to overcome adversity.

When the topic of the EU comes up, music aficionados might sooner think, however, of Franz Schubert’s Seventh Symphony. Two strikingly beautiful movements of this opus were completed. The third movement has remained a fragment; there is no fourth. It is also referred to as “Unfinished”.

Many regard the European Union to this day as “unfinished”. And that also applies to economic integration, even though the single market is one of the key forces that has brought Europe together. Do we have to live with the idea of an unfinished work? Or can we approach the completion of Beethoven’s Ninth? 

In my speech, I would like to discuss this for three areas: the capital markets union, the banking union and the monetary union.

2 Capital markets union

A newspaper commentary a few weeks ago said that the finishing of the capital markets union had long since become a stock element in lists of empty phrases and clichés which attract public derision. 

I can understand the restiveness over the slow progress. Because the truth of the matter is that there have been calls for a capital markets union for a long time. Which has not been fully achieved thus far. Europe’s capital markets are far from being fully integrated. 

Why is that? One reason is the multilayered material. There is not just one measure that will give us a single European capital market. A whole package of measures would be needed which would encroach, in some cases severely, on national law. Its scope would range from corporate insolvency rules to tax law to accounting principles. So far, it has been impossible in many quarters to achieve the necessary political agreement. It would be worth it, however, because the opportunities are great! 

A deep, liquid capital market makes it easier to mobilise private capital. And that is what we need at scale in order to press ahead with the ecological and digital transformation of the European economy. The European Commission estimates that more than €745 billion in additional investment will be needed – annually, of course.[1] The greatest part of this will have to come from private funding. 

What is more, an integrated capital market will support the single monetary policy in the euro area. Because it will play a part in ensuring that monetary policy impulses have equal effect throughout the euro area. 

And in the event of an economic shock in one Member State, downstream costs would be cushioned across the currency area. In this respect, broader private risk sharing will also contribute to financial stability.

We should no longer pass up all these opportunities. It will be about finally removing the barriers on the European capital market. 

It needs to be easier for enterprises to raise funds across national borders, especially equity.[2] This would also make it easier for start-ups and small enterprises to access venture capital. It is precisely here that the gap with the United States is immense: in 2020, twenty times more venture capital was invested in the United States than in the euro area.[3]

But banks, too, stand to benefit from the capital markets union, as a transparent and high-quality securitisation market would allow banks to sell parts of their loan portfolio on the capital market. This would relieve their balance sheets and create leeway for additional loans, for example to fund the transformation. In March, both the Eurogroup and the Governing Council of the ECB endorsed the idea of looking at developing the securitisation market.[4] 

And just as the European Parliament’s current legislative period is coming to an end, some measures of the 2020 action plan have been implemented. For example, a decision to establish a European single access point was adopted. The platform will make it easier for investors to access information in order to find suitable companies and projects. 

Those may be merely small steps towards a single capital market. However, if actually taken, even many small steps will lead to the destination. 

Last week, the 27 EU heads of state or government exchanged views on the topic of the capital markets union. The German Federal Chancellor and the French President both stressed the importance of this topic. After the European elections in June, it should be at the very top of the EU agenda. One thing is clear: lip service will not suffice. To make real progress, all parties will have to pull together, i.e. the Commission, Parliament and Member States. In other words: all members of the European orchestra will have to play along. 

3 Banking union

The same can be said when it comes to making progress with the banking union. At least a large part of the work has already been done in this regard. Two out of three pillars have been erected: the Single Supervisory Mechanism and the Single Resolution Mechanism. These were the product of lessons learned from the financial crisis and are now key cornerstones of financial stability. 

Work on the third pillar has been underway for quite some time. What I’m talking about here is a single European deposit insurance scheme (EDIS). 

It could absorb the effects of potential national banking crises at the European level – effects that would overwhelm a purely national deposit insurance scheme. This way, bank customers’ confidence in depositor protection would be strengthened, thus lowering the risk of a bank run. Moreover, EDIS would take a weight off governments’ shoulders: they wouldn’t need to intervene as often with bailout measures to preserve their country’s financial stability. The euro area could become more resilient overall, which in turn would contribute to financial stability in Germany. 

The EDIS ultimately revolves around the idea of jointly shouldering certain risks within the EU. That’s why it’s important for risks that can be influenced at the level of the individual Member States to be limited adequately. This notably concerns sovereign solvency risks.[5] 

Government bonds are currently not subject to the usual capital requirements or large exposure limits. Reducing these regulatory privileges for government liabilities on bank balance sheets would be the ideal solution, but the political backing to push this through won’t be there for the foreseeable future.

Can we still make progress on the banking union front in spite of this? I certainly believe this to be possible. 

In the search for a compromise, one possible consideration could be to cap the volume of government bonds on bank balance sheets by way of concentration limits. Implementing a distinct ceiling on bank balance sheets would be relatively straightforward in technical terms. It would also be conceivable to introduce concentration add-ons that would apply if the volume of bonds issued by one government exceeded certain thresholds at a given bank. What matters is that risks are significantly reduced as a result.

What also counts is how EDIS is designed in detail. Various options are possible in this context – ranging from a decentralised model, to a hybrid, partially centralised model, to a fully centralised model. 

For my part, I could well imagine a hybrid model, for instance. That would leave national deposit insurance schemes in place. But these would be supplemented at the European level. The European component could provide support, for example, after the national resources have been depleted. 

A hybrid model would offer multiple benefits over a centralised, purely European model. One is that it would be better suited to preserving the autonomy of banking networks and their institutional protection schemes. Another is that the national level would continue to be directly responsible. And lastly, the individual jurisdictions would still be able to influence the health of their banks. 

I, for one, am confident that a solution can be found that strengthens confidence in depositor protection without creating false incentives. The proposal put forward by the European Parliament’s Committee on Economic and Monetary Affairs is a good and important step forward. It contains many valuable ideas, in my view, not least when it comes to strengthening deposit insurance.

But first, the focus is on reforming the bank crisis management and deposit insurance framework. The recent banking crises in the United States and Switzerland have shown once again how important it is to have an effective crisis management framework in place. The existing EU framework needs to be strengthened and refined as proposed by the Eurogroup. This would pave the way for political negotiations on EDIS

4 Monetary union

We certainly still have a great deal of work to do to complete the banking union. To make progress here, perhaps we need to abandon one expectation: that we can complete integration projects in the EU once and for all, and then never need to touch them again. Unlike symphonies, they are not static pieces of work that are preserved untouched over time. Reality puts them to the test, we learn new things and continue to refine them.

Take, for example, monetary union, which celebrated its own première 25 years ago with the launch of the euro. Since then, we have weathered many a crisis together. And we’ve learnt lessons along the way. Just think of the numerous reforms introduced in the wake of the financial and sovereign debt crisis. They played a part in making monetary union more stable.

Our most recent challenge has been inflation reaching levels that were far too high. The Governing Council of the ECB had a decisive response to this, featuring ten interest rate hikes in a row. Our tight monetary policy is bearing fruit. We have managed to tame inflation. In March, euro area inflation stood at 2.4%. Price stability is within reach. Now we have to safely navigate the last mile of the journey.

In their latest projections, ECB staff anticipate that the 2% target will be reached in mid-2025. That being said, the price outlook remains uncertain. Wage growth could recede more slowly or productivity could see a weaker recovery than assumed in the projections, for example. 

We therefore held key interest rates steady again in April. Before lowering interest rates, we need to be sufficiently confident, based on the data, that inflation will actually reach our target in a timely and sustainable manner. This largely depends on developments in wages, productivity and profit margins. If the favourable inflation outlook from March is confirmed in the June projections and the incoming data substantiate this forecast, we can consider a cut in interest rates. 

5 Conclusion

Ladies and gentlemen, 

Even though he lost his hearing, Beethoven was still able to compose music because he could imagine what the notes sounded like. I wish I had as much imagination when it comes to thinking about Europe’s future. 

Monetary union, the capital markets union and the banking union complement each other and strengthen the European single market. It is worth our while striving to complete them. The single market is not just a driver of prosperity. It also gives us a position of strength from which to advocate for our European values and interests. 

This is becoming ever more important in a changing world. A world that has seen growing discord and conflict, and is potentially heading towards a multipolar order. Europe is our chance to ensure that we can determine our own future, even in a world like this. Let’s take that chance.


  1. European Commission (2023), 2023 Strategic Foresight Report – Sustainability and people’s wellbeing at the heart of Europe’s Open Strategic Autonomy. The benchmark should be taken into account here: this is investment above and beyond the status quo. To a degree, the additional investment will supersede already pending investment, which will become obsolete. On top of that, the additional investment can also lead to savings that will provide relief at a later date.
  2. Deutsche Bundesbank, Developments in corporate financing in the euro area since the financial and economic crisis, Monthly Report, January 2018.
  3. European Central Bank, Financial integration and structure in the euro area, Box 1 Making euro area equity markets fit for green and digital innovation, April 2022.
  4. Eurogroup, Statement of the Eurogroup in inclusive format on the future of Capital Markets Union, 11 March 2024; European Central Bank, Statement by the ECB Governing Council on advancing the Capital Markets Union, 7 March 2024.
  5. Many banks in Europe are still holding large volumes of domestic government bonds. See Deutsche Bundesbank, Government debt in the euro area: current developments in creditor structure, Monthly Report, April 2024.