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COMPLETING AND REBALANCING THE ECONOMIC AND MONETARY UNION
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decline only very slowly, while national fiscal
policies will remain heavily constrained. The
Eurozone is confronted with a serious risk of
secular stagnation, with nominal growth below
2 percent for 5-10 years. The euro area would
be unlikely to survive such a Japanese-style dec-
ade because the necessary adjustment process-
es in crisis countries would take far longer in
such an environment than would be politically,
socially and economically bearable.
During the crisis, the EU and the Eurozone
have accumulated huge economic and social
costs, including additional forms of macroeco-
nomic as well as social and gender imbalances,
which must now be fully addressed. This will
not be possible without the completion of the
EMU.
The crisis has laid bare the structural defi-
ciencies of the Eurozone’s political and institu-
tional build, which date back to the EMU’s ori-
gins in the early 1990s.
Major flaws, such as its limited democratic
dimension, the weakness of its economic policy
coordination (despite increasingly complex and
legally binding policy processes) or the lack of
an anti-cyclical fiscal capacity to tackle asym-
metric shocks, have been identified since many
years. The over-reliance on an excessively rules-
based system has constrained the Eurozone’s
ability to deal with its economic crisis and hin-
dered the emergence of real and common poli-
cy-making. Accordingly, the Four Presidents’
report “Towards a Genuine Economic and
Monetary Union” of December 2012 formulat-
ed the need for a banking, fiscal, economic and
political union. However, lack of political will
and prevalence of national narratives about the
Eurozone crisis have until now prevented ade-
quate EMU reform from being implemented.
When the global financial crisis hit, the
Eurozone was just not equipped to effectively
resolve it, and the sovereign debt crisis brought
it to the edge of survival.
Governments have responded to this crisis in
an incremental way, through several EMU-
specific initiatives and others at the EU level.
This notably brought about the launch of finan-
cial stabilisation mechanisms including the
European Stability Mechanism, the European
Semester process, the revision of the Stability
and Growth Pact, the intergovernmental Treaty
on Stability, Coordination and Governance, the
two-pack regulations on fiscal surveillance, a
new Macroeconomic Imbalances Procedure, the
banking union, the important recent clarifica-
tion of SGP’s in-built flexibility, a range of un-
conventional monetary policies deployed by the
ECB, or the newly proposed European Fund for
Strategic Investment (EFSI).
These changes now need to be completed
by several major reforms to the EMU’s way of
working - on how decisions are taken and im-
plemented, with which instruments, and along
which rules and policy concepts. The Eurozone
must now, once and for all, move away from ad
hoc instruments and funds created under emer-
gency towards a structural and coherent institu-
tional framework endowed with adequate re-
sources and democratic legitimacy.
In June 2015, the European Parliament and
Council reached agreement on the regulation
on the European Fund for Strategic Investments
(EFSI). The EFSI became operational later in
2015 and by the end of 2015, the European
Investment Bank Group already approved in-
vestments worth about
€
10 billion under the
EFSI, i.e. about one-sixth of the target volume
for the three years of EFSI operations.