The completion of EMU, and banking union as its critical component, requires that certain taboos in the
policy debate are brought out in the open. First, the Commission must stop pretending that Italian public
debt is sustainable under current policies and shift from politically motivated forbearance to serious
implementation of the SGP and notably its debt rule. Second, it is necessary to acknowledge that crisis
management by the ESM is crippled as long as its financial assistance can only be granted after the
country in need is close to losing market access and, in addition, this threatens the financial stability of
the entire euro area. The already-existing alternative to assist a country that is not respecting the SGP
is to utilise the enhanced conditional credit line (ECCL) introduced by the ESM reform, approved by the
European Council and awaiting national ratifications, in order to agree on a full-fledged adjustment programme
before any euro area member (Italy) comes to the brink again – without any preventive conditions
on the sustainability of public debt. And, third, the completion of the banking union requires a
reduction of banks’ home sovereign portfolios, that can be incentivised by the introduction of mild concentration
charges. However, the system will not work without simultaneously offering the banks and
financial investors in general a true European safe asset, fully guaranteed by its member states. Our
proposal is that such a safe asset could be offered by the ESM, which would purchase in exchange the
sovereigns held by the ESCB as a result of the quantitative easing asset purchase programme. The risk
of losses on these sovereigns would continue to lie with the national central banks, thus avoiding the
transfer of new risks to the ESM