The Euro Area: Repairing a Flawed Design and Its Policy Arrangements

Abstract

The sovereign debt crisis has created enormous anguish in the European Monetary Union (EMU) and emergency measures are used in order to prevent its breakdown. The European Council summit of October 2010 considered a report with a telling name: ‘Strengthening economic governance in the EU’. This document is to be examined in conjunction with the governance reform proposals issued by the European Commission and related documents. In March 2011, the Council adopted the Euro Pact and the European Parliament approved the ‘Six pack’ measures later in the year. A Treaty on Stability, Coordination and Governance (European Council, 2012d) was signed by 25 governments in March 2012. At the end of 2011, the European Central Bank (ECB) embarked on extending ultra-cheap credit lines aiming at keeping banking groups afloat. And in 2012, the ECB announced its determination to help Eurozone governments via purchases of sovereign bonds in secondary markets. Several meetings of the European Council focused on the setting up of a banking union. However, this demarche to reform governance is not an attempt to deal with a terra incognita. From the very beginning of the Eurozone, there was some discomfort with its institutional underpinnings and there were misgivings regarding its optimality as a currency area.