The Eurozone Crisis: A Renewal of Institutional and Political Architecture
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Eurozone crisis, institutional architecture, political architecture, economic governance, political governance, European Commission, crisis management, reforms, eurozone resilience
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Abstract
This document analyzes the eurozone crisis, its impact on the eurozone's institutional and political architecture, and the need for reforms to prevent a new crisis. It discusses the crisis management, the role of the European Commission, and the importance of economic and political governance in the eurozone.
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[...] However, this is a more sensitive issue to public opinion, and therefore, more complex to implement than the banking union or the capital markets union. Nevertheless, the question of labor markets is a major issue to ensure the cohesion of the euro zone. Finally, a last essential point concerns the political integration in the euro zone; that is, the establishment of a more effective and democratic governance of the euro zone, in addition to financial, budgetary and economic integration, towards a 'federalism of reason' according to the expression of J.C. [...]
[...] Unemployment is gradually being absorbed (8.2% in July 2018), or even more rapidly in the southern countries of the eurozone (recent convergence in the eurozone). The non-optimal character of the eurozone, revealed by the crisis, has made it necessary to renew its institutional and political architecture to strengthen its solidity. The optimal character of a monetary zone, according to the theory of Optimal Currency Areas developed by Mundell in 1961, is evaluated through 4 criteria: shock symmetry, commercial integration, factor mobility, and budget transfers. [...]
[...] One could consider a more ambitious industrial and competition policy that would allow the development of large companies in future sectors - cf. the European Commission's report calling for an end to naivety in the face of China) to compensate for symmetrical shocks, a common unemployment insurance base to ensure member states of the euro zone against asymmetrical shocks and an expanded ESM to have a true debt restructuring device (give it more short-term flexibility for a temporarily excluded state from access to markets). [...]
[...] In addition, some consider that the centrifugal forces between members of the euro zone are also related to differences in the role of the state, the role of women, the place of solidarities or even the religion in the countries (Alesina et al., 2017)." Then, in a monetary union, the gaps between economic policies and the levels of production costs cannot be corrected by exchange rate policy, which imposes coordination of economic and wage policies. However, this coordination does not exist in the euro zone. There is no coordination of social security contributions or corporate taxation leading to a continuous decline in the average tax rates on profits in the euro zone in a "race to the bottom" (graph - risk of erosion of the taxable base, cf. ACCIS or BEPS project) and therefore important consequences for public finances. [...]
[...] Frankel and Rose (2000) argue that there is a positive signaling effect and that participation in a monetary union allows for greater market integration and a significant strengthening of trade between union members. On the other hand, Krugman (1993) opposes the endogeneity of OCA, considering that economic, financial, and monetary integration allows countries to exploit their comparative advantages through a process of specialization within the zone, making it more difficult to manage the monetary instrument. Less diversified and therefore more vulnerable to supply shocks, union members will have increasingly less correlated income. Empirically, the eurozone is not an OCA. [...]
