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Jürgen Matthes / Anna Iara IW-Report No. 17 21. June 2016 Targeted reforms instead of more fiscal integration: What is the future for the Economic and Monetary Union (EMU) going to be like?

According to a dominant narrative, the recent crisis has allegedly shown that EMU is not sustainable without fiscal risk sharing. We question this narrative and suggest that a limited set of reforms (mostly focusing on the financial sector) would suffice to make EMU sustainable.

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What is the future for the Economic and Monetary Union (EMU) going to be like?
Jürgen Matthes / Anna Iara IW-Report No. 17 21. June 2016

Targeted reforms instead of more fiscal integration: What is the future for the Economic and Monetary Union (EMU) going to be like?

IW-Report

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According to a dominant narrative, the recent crisis has allegedly shown that EMU is not sustainable without fiscal risk sharing. We question this narrative and suggest that a limited set of reforms (mostly focusing on the financial sector) would suffice to make EMU sustainable.

This debate has gained traction recently with the Five-Presidents-Report and a work programme of the EU Commission.

In brief, we argue that:

  • The recent crisis was exceptional, because several extraordinary factors contributed to its severity that are unlikely to repeat.
  • The remaining crisis legacy is likely to be temporary and should thus be tackled with temporary instruments only, such as the ECB’s unconventional monetary policy, for example.
  • Reforms already implemented and yet to be taken can prevent excessive financial cycles in the future so that future crises in the euro area will be less severe.
  • The functioning of EMU has been improved by recent reforms and need to be enhanced by some additional reforms mainly regarding the financial market.
  • On this basis, euro area countries will be much better able to deal with idiosyncratic crises of a more “standard” size.
Download PDF
What is the future for the Economic and Monetary Union (EMU) going to be like?
Jürgen Matthes / Anna Iara IW-Report No. 17 21. June 2016

Jürgen Matthes / Anna Iara: On the Future of EMU: Targeted reforms instead of more fiscal integration

IW-Report

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