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THE STATE OF THE EUROPEAN UNION
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rates are needed to stabilise the economy in
case of market failure, giving up these instru-
ments in a currency union seems less attractive.
Upon entering a currency union, independence
of monetary policy is lost, and state deficits can-
not be financed independently with the help of
an own central bank, so the liquidity risks of
individual states can lead to solvency crises.
However the idea of a currency union be-
came more attractive in the 1980’s, when peo-
ple weighed up the macroeconomic costs of the
monetary union against the benefits of ridding
oneself of currency market speculation in
Europe and an end to the monetary dominance
of the Deutschmark in the European monetary
system. Nonetheless, the fact that the European
states were still so far from constituting an op-
timal currency area is a clear indication that fis-
cal instruments need to be able to handle the
challenge of regional shocks.
This belief that the currency union also func-
tions as an economic policy project enjoyed a
renaissance among proponents of a fiscal union
during the euro crisis. Since the introduction of
the euro, the European Central Bank (ECB) has
not been in a position to implement a monetary
policy for all countries involved, due to heteroge-
neous economic development. At the same
time, the common coordinating instruments for
economic policy, as agreed in Maastricht and
subsequently, proved to be toothless. The joint
institutions also proved unable or unwilling to
take effective action against the asymmetries
that regularly arose. The only relevant economic
policy coordination of the Eurozone relates to
Member States’ deficits and debt levels.
According to wage policy, adjustment to asym-
metric shocks is left to individual states; however
once there are differences in inflation levels,
these can be amplified pro-cyclically by the one-
size-fits-all interest rate policy of the ECB and
unregulated international capital flows. This
leads to a divergence in labour unit costs and
current account balances across Member States.
Therefore, all proposals from the proponents
of a fiscal union assume the need for closer har-
monisation of economic policy. This camp can-
not understand the asymmetry of euro crisis
management, which blamed the crisis directly
on states with high budget deficits, high levels
of debt, and negative current account balances.
Supporters of a fiscal union believe that crisis
management policy focusing on austerity and
accepting deflation has not taken on board the
lessons of the Great Depression of the 1930s.
However the details of specific proposals for
forced fiscal policy integration in the Eurozone
vary greatly. The key concept is integration of
liability for state debt at a European level, so EU
Member States are not subsequently divided by
different credit ratings in financial markets.
Furthermore, implementing an automatic stabi-
liser dependent on economic trends at a
European level – like e.g. a European unemploy-
ment insurance scheme – should balance out
inadequate adaptation to asymmetric shocks
due to insufficient mobility of labour, and re-
place internal depreciation due to falling wages
and prices, which has been found to be coun-
ter-productive. Furthermore, there is a demand
for an explicit political union, at least in the me-
dium to long term. The single currency should
be viewed as a common public good in this con-
text, and there should be a government with
parliamentary responsibility for the Eurozone
with the right to tax and spend money.
Markets and policy in the migration question
The conflict line between faith in the market
and in political design also exists in other subject