In this new CEPS Commentary, Jacopo Carmassi, Carmine Di Noia and Stefano Micossi present a rationale and detailed outline for the creation of a banking union in Europe.

The diabolical loop between the solvency of the banking system and the sovereign fiscal position is now apparent. In Greece it is the insolvency of the government that has sunk the banks, whereas in Spain the banks are sinking the government. What is common in both countries is that when savers see the banks and the sovereign propping each other up, they run away.  Unless the banks in both Greece and Spain are soon recapitalised, the ongoing gradual deposit flight might turn quickly into a classic run with incalculable consequences.

At this point in the crisis, Daniel Gros writes that the common currency can only be saved if the governments of the troubled economies take determined action, supported by their citizens, to show that they attach overriding priority to their membership in the eurozone, even under difficult circumstances, and that they thus merit unreserved support from the rest of the member countries.

Daniel Gros is Director of the Centre for European Policy Studies

Against the background of the continued crisis in the eurozone, CEPS Associate Senior Fellow Michael Emerson explores in this Commentary the costs and opportunities presented to the EU as a model of competent economic policy management and as a model of enlightened regional integration.

Published on the eve of the NATO Summit in Chicago (May 20-21), this CEPS Commentary analyses the impact of the summit and the Smart Defence agenda on the European Union’s defence policy. Will the EU follow NATO and go ‘smart’? The authors point out that the NATO agenda provides indeed a unique chance for the EU to make unprecedented progress on pooling and sharing. They outline a three-part road map to rationalise the EU defence market and put the Union back on track as a credible and capable security provider.

A new CEPS Commentary finds that the European Commission's proposals for ensuring prudential supervision of the banking sector in the EU, currently under consideration in the ECFIN Council, leave much to be desired. The author, Karel Lannoo, is CEO of CEPS and head of the Financial Markets research unit.

In this Commentary, CEPS Associate Senior Research Fellow Michael Emerson looks at whether the so-called BRICS (Brazil, Russia, India, China and South Africa) actually form a bloc, and concludes that they do not. Three of them form part of another group: IBSA (India, Brazil and the South Africa Dialogue Forum) and are more advanced as partners. However, what both BRICS and IBSA do is confront the European Union with discomforting questions about its role as global actor.

In this CEPS Commentary, Daniel Gros examines the different approaches taken by the Fed and the ECB to bring about economic recovery following the financial crisis and finds that there is a qualitative difference between the two with respect to the risk each is assuming that is more important than the mere size of their balance-sheet.

Daniel Gros is the Director of CEPS.

In this CEPS Commentary Alessandro Giovannini and Daniel Gros assess the decision taken at the informal Eurogroup meeting on the 30th of March to raise the lending ceiling of the European Stability Mechanism/European Financial Stability Facility, arguing that the size of the so-called 'firewall' will be insufficient, should larger member states like Spain or Italy require financial assistance.

All in all, this Commentary finds that the Fiscal Compact signed on 2 March 2012 by all member states of the EU (except the UK and the Czech Republic) may be long on good intentions but is rather short on substance. The main danger is that that it has been oversold and in no way constitutes a first step towards fiscal or political union.

One of the pivotal criteria for judging the success or failure of Medvedev’s diplomacy is the progress made by Russia in its integration into international society. From this crucial viewpoint, he certainly widened the 'window of opportunity' for a more positive interaction with the West, although the movement in this direction has obviously not been linear. Author Andrey Makarychev assesses President Medvedev’s foreign policy legacy in this new CEPS Commentary.

While acknowledging that Portugal is far from being in the same dire straits as Greece in terms of its levels of public debt and deficit, Daniel Gros points out in this Commentary that excess private consumption is Portugal’s real problem. And if this problem is not addressed, he warns that the eurozone might soon have another country in need of debt forgiveness.

Daniel Gros is Director of CEPS.

This Commentary urges the European Parliament and EU Council to undertake a more thorough review of the draft Capital Requirements Directive IV (CRD IV), which implements Basel III in EU law. With a view to streamlining and tightening the proposal, the author argues that the most important amendments to consider are the introduction of risk-weighting on sovereign exposures within the EU and the related application in the large exposures regime, a review of the generous risk-weighting afforded to real estate, and the full application of the leverage ratio.

CEPS Director Daniel Gros explores in this Commentary why the crisis in the eurozone is going from bad to worse, despite the relative strength of the region’s fundamentals. He finds that the resources are there, but that Europe needs to summon up the political will to mobilise them.