| Abstract: | The Third Leg of the Stool: Financial Stability, as a Prerequisite for EMU. — Concerns about fiscal and monetary stability have dominated discussions on EMU, while issues relating to financial stability have received less attention. This paper argues that monetary and fiscal stability are like two legs of a stool. A third leg, stability of the financial system, is required to keep EMU on its feet. The empirical evidence shows that in many European countries, governments still have a large hold on the domestic financial sector, both as owner and as principal debtor. The author argues that governments should leave bank ownership to the private sector, holdings of government debt to the public, and supervision to a specialized, independent European institution. |
