The Euro Area in Search of Coordination

The Eurozone crisis has revealed three major design errors: (1) a monetary union without a banking union, (2) an inconsistency between three prohibitions, namely monetization of public debts, bail-out of a Member state by its partners, and sovereign default, and (3) the virtual absence of coordination of macroeconomic policies. Although the first two errors are being corrected, the third – the purpose of this article – is resistant to reforms because it concerns the sovereignty of the Member states. The coordination of fiscal policies could in fact prove more difficult than the introduction of a common budget based on automatic stabilizers to mitigate business cycles. As for the coordination of other macroeconomic policies, the existing schemes (macroeconomic imbalances procedure, Europe 2020 integrated guidelines) would benefit from being refocussed each on a specific objective, and assessed according to an appropriate timetable.