Last week 160 German economists, organized by Hans-Werner Sinn — call them Sinners — signed a manifesto opposing a European banking union. Today VoxEU has a counter-manifesto, signed by more than 100 economists in the German-speaking world, arguing in effect that the euro cannot survive without such a banking union:

The financial crisis has exposed a fatal flaw in the design of European monetary union which can be removed only by decisive policy action. Policymakers in Europe now have an opportunity to change the game. A central aspect of this problem is the conflation between debt of the private sector and that of European national governments.

In the course of the crisis, fiscal budgets are being tapped to refinance systemically relevant financial institutions. At the same time, financial institutions continue to play a central role in financing national governments, lending money to them and holding their debt. An unavoidable consequence is that bank failures have led to sovereign debt crises and sovereign debt crises have led to banking crises, leading to growing mistrust of both national banking systems and government finance. The situation is aggravated by the fact that international investors, driven by fear of total collapse, have withdrawn funding to struggling countries, both for governments and for banks. This has in turn led to a balkanisation of national financial markets and threatens not only the European monetary union but the European integration project as a whole.

Only by breaking the link between the refinancing of banks and the solvency of national governments will it be possible to stabilise the supply of credit in crisis countries.