Abstract
The euro is irreversible but it needs reform to address well-known design deficiencies and also new challenges. Although progress has been made, further steps are needed, the most important of which are: revision of the fiscal rules, establishing a central stabilisation capacity, and completing the banking union (especially a deposit insurance, a capital market union based around a common safe asset, and improved macroprudential policy). This article sets out the necessary reforms in these areas in detail.
Highlights
I thank the organisers for inviting me to participate in this topical conference and in a session dedicated to discussing ‘The euro at 30? Institutional challenges’
Some of the reforms needed to achieve that are part of the logical completion of what a monetary union should have been from the start; others stem from the new challenges and risks that Europe faces
Among the risks facing Europe are those it shares with all other advanced economies: the low-growth, low-inflation regime and the emergent forces of populism and nationalism embedded in a new geopolitical situation that threatens the fragmentation of the world economic system, as illustrated by ongoing trade and currency disputes
Summary
I thank the organisers for inviting me to participate in this topical conference and in a session dedicated to discussing ‘The euro at 30? Institutional challenges’. Let me start by eliminating the interrogation from this title: I think the euro is irreversible and will be around for longer than ten years This does not mean it does not require further changes to its institutional framework, both to improve economic performance and to dispel thoughts of redenomination risk and populist backlash. Strengthening of macroprudential policy by expanding ECB powers, enlarging the set of macroprudential instruments covered by the capital requirements directives (for example, to include borrower-based measures), and streamlining of approval procedures Among all these points, my absolute priorities are the creation of a European Stabilisation Fund, the revision of the SGP, and the issuance of a European safe asset. A more robust banking sector would benefit by reducing its degree of concentration on domestic sovereign bonds by diversifying towards a European safe asset that is a crucial component of the capital markets union and the international role of the euro
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