The euro is unique in that it is a currency without a sovereign. Since the crisis, there have been major developments towards making the Eurozone more resilient, including the banking union and the European Stability Mechanism (ESM). This column, originally published 12 February 2016, explores whether further normalisation is required to make the Eurozone function properly. It argues that the Eurozone, unlike existing federations, lacks the ability to deliver counter-cyclical fiscal policies while complying with fiscal discipline. Macroeconomic coordination will thus require rules, a strong and independent European Fiscal Board, and the strengthening of the ESM.
Agnès Bénassy-Quéré, 08 April 2016
Paolo Manasse, 01 December 2014
Today’s Eurozone fiscal discipline is the amalgamation of reforms implemented over ten years, with the latest and largest changes agreed in crisis settings. This column argues that the result fosters neither growth nor stability since actual fiscal policy has been powerfully procyclical. The focus on intermediate targets has distracted attention from the final objectives – debt sustainability and economic convergence. A drastic simplification of the current rules is proposed.
Hans Gersbach, 04 January 2014
Democratic governments tend to accumulate excessive debt. This column proposes a new rule – the ‘Catenarian Fiscal Discipline’ – which allows a fiscally disciplined incumbent to limit the debt-making of the next officeholder. This way, fiscal discipline today can lead to fiscal discipline in the future. Such a rule would require that we broaden our notion of representative democracy by recognising the fact that a current government already has various implicit ways of limiting what its elected successors can do.
Gianluca Cafiso, 05 January 2012
2011 was the year the Eurozone began to buckle. The weight of debt taken on following the global financial crisis two years earlier proved too much for some member countries. This column examines how debt-to-GDP ratios increased over that period, the reasons why some economies fared better than others, and what may be in store for debt in 2012 and beyond.
Michael Bordo, Lars Jonung, Agnieszka Markiewicz, 21 September 2011
The single European currency is the first of its kind – a union where monetary policy is decided centrally and fiscal policy decided nationally – something that many argue is the root cause of its troubles. This column looks to history to find examples of federal states with a common currency but without the frailties currently being exposed in the Eurozone. The main lesson: No bailouts.