The crisis unfolding in the eurozone is a chance for radical and profound action. There is a growing consensus that the stability, indeed the viability, of the monetary union demands change to European Union treaties. Europe’s leaders should seize this opportunity to put in place a permanent structure for eurozone governance.

Any new structure must win the confidence of voters and investors alike. It should also acknowledge the real monetary risks of the European Central Bank being coerced into acting as a sovereign lender of last resort for the entire region. Such a structure should therefore be based on clearly delineated responsibilities for monetary, fiscal and funding policy. These three policy pillars would underpin the eurozone’s fiscal union, allowing member states to maintain national sovereignty over taxation and expenditure (provided their debt positions and related annual deficits remained sustainable), while benefiting from the efficiencies of common bond issuance.

The ECB would fulfil the first of these roles, with independent responsibility for safeguarding monetary, financial and price stability within the eurozone. As such it would act as the lender of last resort only to the eurozone banking system, not to sovereigns.