Past and Present of EMU Reform

Abstract

Euro area reform has been at the center of much needed discussions throughout recent years. The Euro area crisis has made it clear that significant vulnerabilities still exist in the current architecture of the European Monetary Union. This has opened an intellectual and policy debate on how to make the EMU more crisis-resilient and whether the Euro area requires more risk-sharing or more market discipline to this end. Along these lines, numerous proposals have been presented by institutions and academics such as the introduction of a common fiscal policy instrument, possible reforms of the current fiscal rules, the creation of a Euro area safe asset to break the sovereign-bank nexus and a common European Deposit Insurance Scheme. This policy brief summarizes the discussions and policy proposals for EMU reform of recent years. After intensive debates, the necessary consensus was not found and no significant breakthrough on EMU reform has been achieved to reinforce the ability of the monetary union to withstand future crises. These intellectual discussions have however laid the groundwork for finding the right answers at the particular moment in the future when political compromises will make it feasible to strengthen the Euro area in a healthy and efficient manner.

Keywords: Euro area reform, monetary-fiscal mix, monetary union, fiscal stabilization

JEL Classification: E60, E63, E65