A genuine EMU will require also some degree of risk-sharing. The crisis has shown that we cannot rely only on national budgets to absorb shocks and support the necessary adjustment. National tools can be inadequate and, without a form of support from the central level, the economic and social price to pay for a Member State can be dramatically high.
The question is: what type of solidarity is acceptable and justified within the context of the EMU? In truth, during the crisis we have made important steps towards mutual insurance. The European Financial Stability Fund, the European Stability Mechanism, the ECB Outright Monetary Transaction arrangement are forms of collective insurance.
At the same time, any move towards forms of financial solidarity between Member States, has met with resistance and has fuelled a growing divide between debtor and creditor countries, the North and the South of Europe. One of the most worrying aspects of the euro crisis is that the embryonic sense of community that was emerging in Europe, cemented by the Erasmus generation and the use of the euro, has been shattered.
Can we overcome this divide and agree on a common notion of solidarity? Solidarity cannot be construed as a moral obligation of some to help others. This type of absolute solidarity presupposes a sense of community, which is not there. By some, that solidarity would be even perceived as unfair, a code for a “transfer union”. Yet solidarity can also be just enlightened self-interest, a form of reciprocity, from which everyone benefits in turn and that does not lead to permanent transfers. That notion is in my view compatible with the logic of the EMU.
From this perspective, I think there is room to reflect on a fiscal capacity for the euro area. Such a fiscal capacity could provide the financial incentives, at least initially, for the implementation of major reforms at the national level and expand later on into other stabilisation functions. In time, it could issue bonds on financial markets to support public productive investments at the EU level. This fiscal capacity would be based on the principle of budgetary neutrality over time. Its operation could be connected to the conclusion of contractual arrangements for reforms, thus linking responsibility and solidarity.
Our ambition is to build a framework that supports Member States commitment to reform their economies that promote greater integration within the Single Market and provides timely stabilisation when a national economy is hit by a crisis. To do that, we need more common solutions at European level. A framework based on a predominant intergovernmental logic will not work. It will not deliver the greater convergence of national economies, the integration within the Single Market and the resilience against asymmetric economic shocks that are required for a stable and sustainable functioning of the EMU.
We need to strike a fine balance between a realistic pragmatism and the right level of ambition for the future. As we complete and implement the measures agreed for the short term, we should not lose sight of the importance of longer term objectives.
Once we have restored confidence in the EU institutions and forged a new political consensus on what is needed for a stable EMU and a stronger European Union, we can reflect on whether the current set up provides an adequate legal basis or we need a modification of the Treaties. This will also be an opportunity to reflect on how we can reconcile the needs of those members of the EMU who need deeper economic, financial and fiscal integration and those Member States who want to preserve a greater degree of sovereign autonomy within the European Union.
© Policy Network
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