Tuesday, August 23, 2011

Managing the Eurozone


Reading about Sarkzoy, Merkel to invite Van Rompuy to head Eurozone I must say I liked the idea 18 months ago. From a paper published in European View Volume 9, Number 1, 79-92, DOI: 10.1007/s12290-010-0117-3.
Enhance economic coordination. This is a logical requirement to maintain monetary integration. The crisis has shown its mechanisms should be taken much more seriously. In the enforcement of the Stability and Growth Pact the Commission should take advantage of the new provisions in the Lisbon treaty. The pact should be extended with supervision of private debt and the balance of payments. Because economic coordination calls for measures in the member states, the European Council should take the lead in shaping coordinated economic policy and the Commission in overseeing it. The coordination in the Monetary Union should be particularly strong and take place at a prime ministerial level (underlined today).

At the time (and now as well) the Monetary Union was handled by an almost informal meeting of the finance ministers of the Eurozone the evening before the meeting of ECFIN.
 
Today I would just add that economic policy coordination and budget supervision will solve little on the long run. It is an accounting measure. People will have to flow from regions doing bad to regions doing well, and money - in the form of investments rather than loans - will need to flow from countries with surpluses to countries with deficits. To do so the PIGS (and a few others) will have to set up an attractive business environment, because there are places outside of the EU where one can invest.