European Central Bank President Mario Draghi called for the eurozone to deepen its banking union and create a new fiscal "instrument" to help absorb shocks, lending public support to calls for greater European economic unity backed by France.
"Public risk-sharing through backstops helps reduce risks across the system by containing market panics when a crisis hits," Draghi said in a speech at the European University Institute in Florence, Italy, calling for the completion of a banking resolution framework and a European deposit insurance scheme.
"A strong resolution framework ensures that, when bank failures do happen, very little public risk-sharing is actually needed as the costs are fully borne by the private sector."
Draghi also called for fiscal measures to share the burden of any future crisis across the economically disparate bloc.
"We need an additional fiscal instrument to maintain convergence during large shocks, without having to over-burden monetary policy. Its aim would be to provide an extra layer of stabilization, thereby reinforcing confidence in national policies," Draghi said, while acknowledging that such an instrument would not be easy to design.
"It is not legally simple because such an instrument should be consistent with the treaty. And, as we have seen from our longstanding discussions, it is certainly not politically simple," Draghi said.
"But the argument whereby risk-sharing may help to greatly reduce risk, or whereby solidarity, in some specific circumstances, contributes to efficient risk-reduction, is compelling in this case as well, and our work on the design and proper time frame for such an instrument should continue."
Draghi's statements came as France presses for eurozone reforms to pool more risks, ahead of a meeting of European leaders in June. The proposals have met with a tepid response from Germany, which has traditionally opposed measures which it fears could force the bloc's richer countries to pick up the debts of weaker members such as Greece.