European Central Bank President Mario Draghi warned against exaggerating the tradeoffs between risk sharing and risk reduction in the eurozone, arguing it has hampered monetary policy transmission.

“Since a long time we have reached an impasse on key issues including on completing the banking union and deepening fiscal policy coordination,” Draghi said in Frankfurt on Wednesday. “This has been perpetuated by two alleged dichotomies -- the first is the notion that to complete banking union, risk reduction needs to precede risk sharing. The second is the idea that deepening risk-sharing through the private sector should take precedence over increasing public risk-sharing.”

Draghi’s comments signal heightened concern about a lack of progress in Europe, amid rising populism and despite EU leaders acknowledging that the euro area eventually needs some kind of joint fiscal capacity and common deposit insurance. He argued that markets typically panic when there is no element of risk sharing, and that appropriate backstops help stabilize market expectations.