The euro-crisis’ mismanagement has discredited the euro-area’s model of centralized economic governance, forcing the postponement of further integration plans until after Germany and France finish general elections in 2017.
Marine Le Pen’s nationalist party has a non-negligible chance at victory in France, limiting Germany’s ability to increase risk sharing or deepen integration.
At the same time, the stricter German position endorsed by Bundesbank, which calls for decentralized governance for the euro-area, will gain support, with “bail-ins” becoming the cure-all instead of “bail-outs.”
Bail-ins will occur at either the banking resolution level or through sovereign bonds. Bank holdings of sovereign debt could become subject to quantitative limitations. Government bonds could face explicit restructuring. A country in crisis will no longer be bailed-out by other member states.
What cannot be allowed is the avoidance of bail-ins through direct intervention by the State, as was the case with Banca d’Etruria and three other banks. The subsequent domestic bail-out of local banks would create a deadly bank-to-sovereign-debt loop of doom, which had made the euro-crisis unmanageable. The situation would worsen once the bail-out of states themselves are categorically ruled out.