Wednesday, December 14, 2011

The political endgame for the euro crisis

by Charles A.E. Goodhart and Dirk Schoenmaker


December 14, 2011

The euro crisis continues to deepen, as European leaders continue with their ‘too little too late’ policy reforms. This column argues that fixing the Eurozone problems requires a strong direction of fiscal and banking policy, but that this in turn requires deeper political integration including an elected president of the European Commission and a two-chamber parliament representing EU citizens and EU member states.

The euro has a supranational monetary policy framework, while the fiscal side is still national/intergovernmental. We have a central bank president for the Eurozone, but no finance minister. But how could countries possibly cede sovereignty over some aspects of fiscal policy without democratic legitimacy?

We need to fix the political dimension before we can finally solve the financial side of the sovereign and banking crisis. It is not sufficient to elevate the current Commissioner for Economic and Monetary Affairs to Finance Minister status. A full democratic setting – including an elected president of the European Commission – is necessary to complete political union.

Political legitimacy for the Commission president is needed for two reasons:
  • To enforce budget discipline on participating members, to restrict the impact of fiscal spending on the wider Eurozone.
  • To oversee Eurozone banking supervision and resolution, to foster the stability of the Eurozone banking system.

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