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.