Europe after the crises: toward an optimum financial area?

Europe’s policymakers embarked on an ambitious experiment in institution building after the last crisis – to make banks safer, to make financial markets more efficient, and to pool resources to respond to collective losses when the markets move against them. The goal is to construct a financial area that is resilient to the usual ups and downs in financial market performance and that can remain integrated even when systemically important institutions or sovereign finances run into trouble. The problem, policymakers complain, is that they know what to do, but they cannot overcome powerful political opposition to those new institutions or reforms. We use the examples of the United Kingdom, the United States, and Canada to show, that this problem is not unique. Building an ‘optimal financial area’ is no easier within countries than between them.