31 May 2017

Make European monetary union wind and weatherproof

“European monetary union needs more stability. The sovereign debt crisis, in particular, showed us just how fragile the eurozone is. And though the crisis has now been defused, the measures taken were ultimately no more than emergency surgery. So a frank and thorough debate is long overdue about how to steer a course towards more robust monetary union,” said Michael Kemmer, General Manager of the Association of German Banks, in reference to today’s publication by the European Commission of its reflexion paper on deepening economic and monetary union.

The prerequisites for making a long-term success of monetary union are often seen as lying in the progressive mutualisation of tasks and functions. But, stressed Kemmer, “two basic principles will determine the success or failure of such an approach – first, there is a need for greater economic convergence of the euro states and, second, reforms have to set the right incentives.”

A key precondition for the sustained stability of monetary union was a greater alignment of the economic performance of countries in the eurozone. This meant that the conditions for doing business in member states had to be brought more into line. “It will continue to be up to national economic policymakers to continuously adapt the conditions for doing business in their country to changing competitive conditions in the global economy,” Kemmer added.

In addition, careful consideration needed to be given to the incentives created by possible reforms. Greater mutualisation of hitherto national tasks only made sense if the associated sovereign rights were simultaneously transferred to the eurozone. “Collective liability without the simultaneous transfer of decision-making and oversight powers to European level will inevitably lead to the oft-cited ‘organised irresponsibility’,” warned the association’s General Manager.

The association hopes that the evident political will to stabilise monetary union will be sufficient to finally overcome these two obstacles, which have proved insurmountable until now.

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