Fiscal, economic and financial vulnerabilities: implications for Euro area surveillance

Abstract

Sound public finances are necessary for the functioning and economic prosperity of a common currency union. The financial, economic and European sovereign debt crises revealed that financial stability and economic growth also serve as prerequisites and that all three interact in this respect. This has made clear that containing related vulnerabilities and risks in order to effectively prevent serious crises is complex and not sufficiently addressed by the current institutional framework of the Euro area. Substantial institutional shortcomings are now being addressed by reforms. However, in this article, we argue that further institutional reforms are needed in order to integrate vulnerability and risk analyses into surveillance processes. Above all, we propose setting up an independent expert council that is charged with the evaluation of all surveillance processes.