The second implication of the absence of fiscal transfers is that countries need to invest more in other mechanisms to share the cost of shocks. Even with more flexible economies, internal adjustment will always be slower than it would be if countries had their own exchange rates. Risk sharing is thus essential to prevent recessions from leaving permanent scars and reinforcing economic divergence.

A key part of the solution is to improve private risk sharing by deepening financial integration. Indeed, the less public risk sharing we want, the more private risk sharing we need. A banking union for the eurozone should be catalytic in encouraging deeper integration of the banking sector. But risk sharing is also about deepening capital markets, especially for equity, which is why we also need to advance quickly with a capital markets union.

Still, we have to acknowledge the vital role of fiscal policies in a monetary union. A single monetary policy focused on price stability in the eurozone cannot react to shocks that affect only one country or region. So, to avoid prolonged local slumps, it is critical that national fiscal policies perform their stabilization role. And to allow national fiscal stabilizers to work, governments must be able to borrow at an affordable cost in times of economic stress. A strong fiscal framework is indispensable to achieve this, and protects countries from contagion.

But the crisis experience suggests that, in times of extreme market tensions, even a sound initial fiscal position may not offer absolute protection from spillovers.

This is another reason why we need economic union: markets would be less likely to react negatively to temporarily higher deficits if they were more confident in future growth prospects. By committing governments to structural reforms, economic union provides the credibility that countries can indeed grow out of debt.

Ultimately, economic convergence among countries cannot be only an entry criterion for monetary union, or a condition that is met some of the time. It has to be a condition that is fulfilled all of the time. And for this reason, to complete monetary union we will ultimately have to deepen our political union further: to lay down its rights and obligations in a renewed institutional order.

The author is president of the European Central Bank.