László Andor, former EU- Commissioner, IMK Senior Research Fellow
1. What do we need in the Euro area? A step back with a more renationalized policy approach? Or do we need further Europeanisation of policy?
The idea to renationalize risk as well as governance within the EMU, as repre-sented by Philippe Legrain, Simon Wren-Lewis, Martin Sandbu and others, is tempting but in my view wrong. Renationalisation could be the optimal solution in case the door is entirely closed towards fiscal union. But even a partial fiscal union is superior to renationalization (while keeping the single currency). Renationalisation would require a sophisticated risk management and resolution mechanism, in order to avoid that small and medium size member states appear again as “too big to fail” and trigger ad hoc sovereign lending solutions with counter-productive conditionality (such as in 2010). Renationalisation does not offer solutions to divergence which is the main threat to the sustainability and legitimacy of the EMU. If, however, the banking union cannot be completed and fiscal union cannot be launched, renationalization probably remains the only option, but at the end with the renationalization of currency as well.
2. In what fields do you see the necessity to change the European policy ap-proach?
First of all, I do not think EMU reform can continue as a slow motion, incremental process. The Eurozone has not recovered properly from the long recession and we are headed towards the next downturn without having sufficiently reinforced our structures. At the same time, the Eurozone periphery, and especially Southern Europe still struggles with the social and political consequences of the crisis. Governability is in question in several countries. Hence the need for a more comprehensive approach to reforming and reinforcing the single currency, if we want to save it at all. The key question is how to create a (counter-cyclical) fiscal capacity through a combination of possible elements, like further relaxation of fiscal rules, establishment of automatic stabilisers, and the appointment of a eurozone finance minister.
3. What would be the benefits of such an approach?
Any major step towards a Eurozone fiscal safety net would trigger positive re-actions from the financial markets, which always looked at the periphery countries with suspicion in the absence of clear commitment from the community as a whole to maintain solvency and integrity. Completing the banking union with deposit insurance would make it truly effective, and automatic fiscal stabilisers can reduce the negative economic and social impacts of any future downturn. Of course, the design of such schemes would matter a lot, but the tremendous expert work of the recent years has delivered sufficient preparations for rapid decision making, when the political momentum emerges for that.