EU policies

Sebnem Kalemli-Ozcan, 12 February 2016

The ongoing Eurozone Crisis has raised many debates on what needs to be done to reduce the frequency and severity of similar future crises. This column discusses the implications of equity versus debt flows in terms of risk sharing during the Crisis, and in terms of slow recovery in the aftermath of the Crisis. The author suggests that to induce a fast recovery in an aftermath of a crisis, the EZ needs a banking union and a broader financial union based on equity ownership. 

Agnès Benassy-Quéré, 12 February 2016

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 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.

Thorsten Beck, 12 February 2016

A lot has been achieved in terms of institution building to turn the Eurozone into a sustainable currency union. The Eurozone Crisis, however, has shown that the Eurozone is still not a properly functioning currency union. This column points to three areas of further reform to achieve such a goal. These include the disentanglement of sovereigns and banks, completion of a banking union, and an institutional convergence for a fully integrated financial system.  

Barry Eichengreen, Charles Wyplosz, 12 February 2016

The Eurozone crisis has shown that monetary union entails more than just sharing monetary policies. This column identifies four minimal conditions for solidifying the monetary union. In the case of fiscal policy, this means a decentralised solution. In the case of financial supervision and monetary policy, centralisation is unambiguously the appropriate response. In the case of a fourth condition, debt restructuring, either approach is possible, but the authors prefer a solution that involves centrally restructuring debts while allocating costs at national level.

Daniel Gros, 12 February 2016

The Eurozone’s ‘Banking Union’ created a system of banking supervision and a common institution to restructure troubled banks. There remain two issues, however, that need to be addressed:  banks are holding too much debt of their own sovereign, and deposit insurance is only backstopped at the national level. This column argues that these issues need to be addressed simultaneously for economic and political reasons. Specifically, periphery and core countries hold opposing positions on remedies to the respective problems. A combination of the two makes economic sense and could represent an acceptable political compromise.

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