“Fragmentation is a strategic vulnerability”

Interview with Kyriakos Pierrakakis, President of the Eurogroup, Supervision Newsletter

12 August 2026

During your candidacy for the Eurogroup presidency, you said that Europe’s capital remains “trapped in national compartments that fragment liquidity and weaken market depth”. What would need to change in supervision, regulation and market structure for the banking union to function more like a truly integrated market?

The challenge for Europe’s financial sector has fundamentally changed. For many years, our priority was to build a banking system that was strong, stable and resilient. We have achieved that. Today, Europe faces a different challenge: ensuring that its financial system becomes a driver of competitiveness and long-term growth.

Our competitiveness depends on our capacity to invest – in innovation, in the green and digital transitions, in defence, in infrastructure and in the companies that will shape Europe’s future.

That is why the savings and investments union and a competitive banking sector are two sides of the same coin. Europe’s banks remain the backbone of financing for our economy. If we want the savings and investments union to succeed, we need banks that can operate on a truly European scale, support businesses wherever they are in the Single Market and channel capital efficiently towards Europe’s strategic priorities.

The European Commission’s Communication raises precisely the right issues.

First, we need to make cross-border banking the rule rather than the exception. Capital and liquidity should be able to flow more freely within the banking union, supported by stronger common safeguards and greater trust between supervisors. An integrated banking market is not an end in itself; rather, it is what enables capital to reach the most productive investment opportunities across Europe, creating more financing options for businesses and making better use of European savings.

Second, we need a regulatory framework that supports both resilience and competitiveness. Europe should continue to uphold high standards, but we should also ensure that our rules reflect the realities of the European banking sector. Adapting regulation is not about lowering standards; it is about making our framework more predictable and better able to support investment, innovation and sustainable growth.

Third, we need to simplify. Complexity should never become a competitive disadvantage. By reducing unnecessary administrative burden and making prudential and resolution frameworks more coherent, we can allow banks to focus on what they do best: financing households, entrepreneurs and businesses, rather than navigating avoidable complexity.

Ultimately, this is about much more than the banking sector. It is about Europe’s future. Europe does not lack talent. It does not lack ambition. And it certainly does not lack savings. What has been missing is our ability to connect those savings with the investment opportunities that will define Europe’s next chapter. Closing that gap is one of the most important economic challenges we face.

In this context, what would help unlock the political deadlock around the European deposit insurance scheme (EDIS) and the banking union?

I believe we need to start with a change of perspective. For years, EDIS was framed as a balance between risk reduction and risk sharing. That’s still important, but fragmentation is no longer only a financial inefficiency; it is a strategic vulnerability. Can Europe finance its own future if its banking market remains divided by national borders?

Common protection and market integration must advance together. The path forward should build on the sequence agreed on by the Eurogroup in 2022: first, strengthen the common framework for bank crisis management and national deposit guarantee schemes; then assess, by consensus, the remaining elements of the banking union.

The reform of the crisis management and deposit insurance (CMDI) framework adopted this year completes the first step of that process. It improves the management of bank failures, strengthens depositor protection and helps limit recourse to taxpayers. The priority should now be to implement it effectively.

I also welcome the Commission’s intention to replace the 2015 EDIS proposal with a simpler framework that better aligns responsibilities and financing at national and central levels, addresses potential liquidity shortfalls and ensures that covered deposits are protected equally throughout the banking union.

The Eurogroup’s July work programme gives us a clear route forward for the second step: to assess progress made since 2022 and identify possible further measures to remove the remaining barriers to completing the banking union and strengthen the competitiveness of the euro area banking sector, ahead of the Commission’s legislative proposals in 2027.

A stronger banking union is the foundation for a successful savings and investments union, and for Europe’s capacity to finance its own future. That is why I believe the conditions are now in place to build a new political consensus. Our responsibility is to turn that shared understanding into practical, consensual steps that strengthen the banking union for the benefit of all Europeans.

The Eurogroup plays a central role in coordinating economic policies across the euro area and building common approaches. Why is this forum so important in today’s environment, and what is your vision as President for taking that coordinating role forward, particularly when it comes to banking matters?

The stronger Europe wants to be, the more important economic coordination becomes.

The challenges we face need to be addressed together: weaker productivity, intensifying global competition, geopolitical fragmentation, higher investment needs and a rapidly changing security environment. They all require shared ownership and coordinated action.

That is where the Eurogroup adds value. It creates the space for finance ministers to come together for frank and strategic discussions. It allows us to step back from individual legislative proposals and develop a holistic understanding of the challenges we face.

I often say that the Eurogroup’s greatest contribution is helping Europe develop a shared vocabulary. Once we agree on how we understand a challenge, agreeing on the direction of travel becomes much easier. That political convergence is often what enables legislative agreements to follow.

The Eurogroup has demonstrated this repeatedly, from guiding the euro area through the sovereign debt crisis and the pandemic to shaping the debate on the digital euro, the savings and investments union and the banking union. Recently, we also set out our stance on the exciting and dynamic world of digital finance.

As President, I want the Eurogroup to be even more dynamic, strategic and forward-looking. Coordinating fiscal and economic policies will remain at the heart of our work, particularly as fiscal space becomes more constrained while investment needs in defence, climate, digitalisation and population ageing continue to grow. That is why I wholeheartedly support the “quality of public finances” exercise. Looking not only at the level of public spending but also at its effectiveness, efficiency and governance will help us learn from one another, reduce fragmentation and make better use of public resources.

Moreover, the Eurogroup should devote more attention to the structural transformations that will shape Europe’s future, including AI, demographic change, Europe’s investment gap, geopolitical fragmentation and economic sovereignty. In my view, the Eurogroup’s role of coordinating member states’ responses to the economic challenges of the moment goes hand in hand with being prepared for the developments of the future.

Progress on banking union and advancing the savings and investments union will be among my key priorities as President. These are central to Europe’s competitiveness and its ability to finance its strategic ambitions. The Eurogroup is uniquely placed to bring ministers together and build the political consensus needed to remove the remaining barriers to integration, strengthen trust among Member States and keep up the momentum behind these reforms.

My role as President will not be to impose solutions, but to create the conditions in which consensus can emerge, helping ministers move from national perspectives towards a genuinely European one.

My ambition is for the Eurogroup to be recognised as a driver of future prosperity. In today’s world, stability, competitiveness and strategic autonomy are increasingly inseparable, and I see the Eurogroup at the centre of that conversation.

How do you view the European Commission’s recent work on the competitiveness of the banking sector? What should the main priorities be if Europe wants a banking sector that is not only resilient, but also better able to finance growth, innovation and strategic investment?

Resilience is still the foundation of Europe’s banking sector, but it is no longer enough. Today, Europe also needs a banking sector that can finance a new growth model.

Our continent has no shortage of ideas, talent or scientific excellence. But when innovators enter the market, they often lack the financial depth and scale to turn breakthroughs into globally competitive businesses. That is why the savings and investments union is so important. It would provide the framework to mobilise Europe’s abundant savings, which are too often stuck in low-yield deposit accounts instead of being channelled into productive investment.

But the savings and investments union must be complemented by the banking union. Banks continue to provide around 70% of financing to the European economy and will remain the principal source of finance for businesses, particularly small and medium-sized enterprises, for the foreseeable future.

This does not diminish the banking union’s original purpose of strengthening financial stability. On the contrary, resilience remains its foundation. But in today’s environment, the banking union is also a competitiveness project. Europe needs banks that can operate at scale, support businesses across the Single Market and channel capital towards our strategic priorities.

The ink on the Commission’s Communication has only just dried, and I do not want to prejudge the Eurogroup’s forthcoming discussions. However, I believe our work should focus on three objectives.

First, completing Europe’s financial integration architecture, with the implementation of the new CMDI framework as a core element. Second, facilitating greater cross-border banking activity and consolidation. The Eurogroup should continue to discuss how deeper integration can improve the allocation of capital and liquidity, create economies of scale and expand financing opportunities for European businesses. Third, creating a consensus on where we can simplify the regulatory framework while preserving resilience and supporting scale and competitiveness. Adapting regulation is not about lowering standards, but about ensuring that European banks can compete effectively while maintaining financial stability.

The overall objective is to build a banking sector that is resilient, competitive and truly European, one that complements the savings and investments union and helps finance Europe’s growth and long-term competitiveness.

How can policymakers and supervisors streamline rules and processes while preserving the resilience and credibility that underpin trust in the banking system?

The starting point must be clear: simplification cannot mean weakening safeguards. The resilience of Europe’s banking sector is a testament to the work carried out by both banks and authorities over many years. It is a hard-won achievement that underpins confidence in our financial system. But we cannot take it for granted. In a world of heightened geopolitical uncertainty, cyber risks and rapid technological change, banks must continue to maintain strong resilience and crisis preparedness.

Strong regulation does not have to mean unnecessary complexity. In fact, excessive complexity can make the system less transparent, harder to supervise and more costly to operate. The objective should therefore be rules that are rigorous but also coherent, proportionate and predictable.

Supervisors also have an important role to play. Greater coordination, clearer expectations and more consistent application of the Single Rulebook across Member States would reduce uncertainty and unnecessary duplication. Banks should not face materially different interpretations of the same European rules depending on where they operate.

Technology can also be part of the solution. Better data sharing, more harmonised reporting and greater adherence to the principle of collecting information once and reusing it where appropriate can reduce administrative burden while giving supervisors a clearer and more timely view of risks. The guiding principle should be simple: every requirement must serve a clear prudential purpose, and similar risks should be treated consistently.

Trust does not come from the number of rules we have. It comes from the quality of the framework, the strength of supervision and the confidence that risks are properly understood and managed. Europe does not have to choose between resilience and competitiveness. By making its banking framework simpler, more transparent and proportionate, it can strengthen both, while preserving the high standards that underpin financial stability.

Before moving to finance, you led Greece’s digital transformation in government. What lessons from that experience could be most relevant for banking and supervision today, particularly in terms of improving data quality, efficiency and the interaction between supervisors and banks?

Leading Greece’s digital transformation taught me a lesson that goes well beyond technology: digitalisation is not about putting existing processes online; it is about rethinking how institutions work. In banking supervision, everything starts with data. Better data lead to better supervision, and better supervision strengthens trust.

One of the biggest lessons we learned from our experience with gov.gr was that citizens should not be asked to provide the same information repeatedly to different parts of government. Instead, information should be collected once, shared securely where appropriate and reused across public services. In Greece, that reduced bureaucracy improved the quality of services and strengthened trust in government.

I believe the same philosophy should guide the future of banking supervision in Europe. If supervisors receive the same information in different formats, at different times and through different channels, they spend too much time reconciling data instead of analysing risk. Our objective should therefore be simple: banks should not have to repeatedly provide the same information to different supervisors in different formats. Information should be collected once, in accordance with common standards, and reused securely wherever it is needed.

Interoperability is fundamental. One of the reasons gov.gr succeeded was that it connected previously separate registries into a single digital ecosystem. Banking supervision should follow the same logic. Imagine the European Central Bank, the European Banking Authority, national competent authorities and resolution authorities working with the same high-quality data, rather than relying on fragmented reporting and duplicated requests. That would improve supervisory quality while significantly reducing compliance costs and administrative burden for banks, allowing them to focus more on financing households, businesses and innovation.

High-quality data is also the foundation for more intelligent supervision. Artificial intelligence and advanced analytics can help supervisors detect emerging risks earlier, identify anomalies more effectively and focus their attention where it matters most. The value of AI is not that it replaces human judgement; it is that it enables supervisors to ask better questions sooner and make more informed decisions.

In the end, digital transformation is an investment in better supervision and better governance. By embracing digitalisation, we can build a supervisory framework that is more transparent and better equipped to support Europe’s competitiveness, without ever compromising financial stability.

Supervisors have recently highlighted operational and cyber risks linked to increasingly powerful AI tools such as Mythos. How should banks and authorities ensure that resilience keeps pace with innovation, particularly when it comes to governance, timely security updates and operational resilience?

Artificial intelligence is one of the most transformative technologies of our time. But for Europe, it is about much more than technology. It is about resilience and our capacity to shape our own economic future.

This is why the discussion we recently held in the Eurogroup is so important. The question is not only how European banks can manage the operational and cyber risks associated with increasingly powerful AI tools like Mythos, but more importantly whether they will be able to harness their benefits. Europe cannot afford to fall behind in either respect.

Operational resilience must evolve alongside technological innovation. That starts with strong governance, supported by human oversight, robust cyber security, timely security updates and continuous resilience testing. Innovation and resilience must advance together.

Resilience requires investment, and investment requires scale. Even our largest banks remain relatively small compared with their international peers. The five largest euro area banks are broadly comparable in size to those in the United Kingdom and Japan, despite serving a much larger market, and remain significantly smaller than the largest banks in the United States and China. One important reason for this is the relatively limited level of cross-border consolidation in Europe. Scale increasingly determines the ability to invest in frontier technologies. Investment in technology by Europe’s largest banks, as a share of total assets, has been significantly lower than that of their US peers. That is a real concern.

This is why I have initiated a discussion in the Eurogroup on the obstacles preventing European banks from scaling up and consolidating across borders. We should approach that discussion with an open mind. A more integrated banking sector would give European banks greater capacity to invest in innovation and strengthen their operational resilience in order to remain globally competitive. The goal is a European banking sector that is capable of competing and leading on the technologies that will define the next decade.

Greek banks have made significant progress in addressing non-performing loans from the past. What lessons can supervisors take from that when focusing on credit underwriting standards, good lending practices and preventing a new build-up of bad loans?

The experience of the past decade has taught us a simple lesson: the best way to deal with bad loans is to prevent them from accumulating in the first place. Cleaning up balance sheets is essential, but real success lies in ensuring that excessive risk does not build up again. Prevention is always better than resolution.

The Greek banking sector today is very different from the one we knew a decade ago. Balance sheets have been substantially repaired, asset quality has improved dramatically and banks are now better positioned to finance investment and economic growth. This demonstrates that determined reforms and effective cooperation between banks, supervisors and public authorities can deliver lasting results.

The most important lesson we have learned is that resilience begins with prudent lending. Strong underwriting standards remain the first line of defence against future asset quality problems. In fact, credit discipline matters most during periods of strong growth, when the temptation to relax standards is greatest.

The second lesson is that supervision must be forward-looking. The objective is not to identify today’s risks, but to anticipate tomorrow’s. That requires high-quality data, proportionate supervision and a willingness to act early. The goal is not to become better at managing crises, but to make crises less likely in the first place.

Perhaps the greatest achievement of the Greek banking sector was embedding a stronger culture of risk management and credit discipline. That cultural change is what will help preserve resilience in the long term.

The overarching lesson from Greece is that resilience is not an end in itself. It is the foundation for a banking system that can finance the future with confidence, supporting growth and entrepreneurship while safeguarding financial stability throughout the credit cycle.