Monetary Integration in Europe and the Drawbacks of Centralization

Abstract

The continuing financial crises in some member countries of the eurozone have intensified the debate about reforms of monetary integration. The deep and lasting crises in a number of member countries of the European Monetary Union have demonstrated that the original architecture of the Treaty of Maastricht has to be revised. It did not prevent Greece, Ireland, and other economies from implementing unsustainable fiscal policies. However, the two alternatives suggested by the proponents of deeper integration—either deeper integration regarding monetary and fiscal policy, or a return to antagonistic, national policies—are far from being inevitable. By contrast, it is possible to make the monetary union more crisis proof while at the same time giving the European nations a high degree of responsibility for their own economic development. The frequently cited assertion that transferring—i.e., centralizing—hitherto national competencies to the European level would make fiscal policy and financial regulation easier to manage is not convincing. That approach ignores the downside of centralization. Far-reaching centralization may result in new problems and will weaken, not strengthen, the economic dynamism of the European Union (EU).