In search of a better governance in the euro area

Catherine Mathieu (1) , Henri Sterdyniak (1)

1 OFCE - Observatoire français des conjonctures économiques (Sciences Po)

The 2007 crisis highlighted the drawbacks of the euro area framework which were already there from the launch of the single currency. There cannot be a single currency between countries with different economic situations and independent economic policies. Euro area governance (no public debts guarantee by the ECB, arbitrary rules focusing on public finances only), was not satisfactory. EU institutions tried to impose a strategy (domestic policies constraints, public deficits cuts, liberal structural reforms) which failed. Before the crisis, imbalances had risen between Northern Member States (MS) and Southern MS, and became unsustainable with the crisis. The Fiscal pact strengthened rules lacking economic rationale. Blind austerity policies led the euro area to fall in depression and undermined euro area cohesion. The procedures implemented strengthen economic policy surveillance between MS, without organising real domestic economic policy coordination. They allow for limited solidarity, at a very high price. Fiscal federalism projects cannot offset the loss of independence for domestic economic policies. MS Public debts should become safe assets again, thanks to the ECB's guarantee. This requires implementing real economic coordination, which should target growth, full-employment and orderly reduction in imbalances between MS. Europe should reaffirm its specificity: a social model, a will to prepare for ecological transition. These are prerequisites for Europe to make progress.

Domaines: Economies et finances

Catherine Mathieu, Henri Sterdyniak. In search of a better governance in the euro area. Revue de l'OFCE, 2014, 134, pp.127-140. ⟨hal-01053901⟩