Policy Briefs

P. Schlosser: Which design for EMU’s missing crisis management pillar?

The euro crisis has revealed gaps and shortcomings in the original architecture of Europe’s Economic and Monetary Union (EMU) that have been partially addressed by the ad hoc layering of new rules and instruments and by the creation of the Banking Union in June 2012. The original EMU set up was indeed flawed (De Grauwe, 2013; Giavazzi and Wyplosz, 2015). Maastricht-designed EMU proved to be highly geared towards its monetary pillar, under-developed in its fiscal dimension, over-specified in its battery of rules and under-equipped in its arsenal of crisis management capabilities. Besides, EMU was established on the underlying notion (and one might add, cognitive approach) that all emerging risks potentially threatening EMU’s sustainability would come from the fiscal side whose alleged perilous developments were to be contrasted to the proclaimed anchoring power of monetary policy.

As a result, no EU institutions and instruments were in place to deal with risks or vulnerabilities which originated in - or were largely amplified by – the financial sector. As neatly captured by Sapir and Schoenmaker (2017:1): ‘there was no common instrument in case a sovereign faced a liquidity or solvency crunch. For banks, there was not even a common instrument for the surveillance of risk, and there was no common instrument in case of a liquidity or solvency crisis. Everything was left in the hands of individual member countries’.

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