Jump to ContentJump to Main Navigation
Show Summary Details
More options …

The Economists’ Voice

Ed. by Belke, Ansgar / Schnabl, Gunther

1 Issue per year


CiteScore 2017: 0.15

SCImago Journal Rank (SJR) 2017: 0.104
Source Normalized Impact per Paper (SNIP) 2017: 0.105

Online
ISSN
1553-3832
See all formats and pricing
More options …
Ahead of print

Issues

Solidarity and Responsibility in the Euro Area: Foes or Friends?

Andrea FracassoORCID iD: http://orcid.org/0000-0003-1581-8481
Published Online: 2018-09-20 | DOI: https://doi.org/10.1515/ev-2018-0024

Abstract

The recent debate on the reform of the economic governance in the euro area has been marred by a stark disagreement on the correct sequence between risk-reduction (responsibility) and risk-sharing (solidarity). In fact, the dichotomy between risk-reduction and risk-sharing may be fallacious as they reinforce each other, particularly in a monetary union with no lender of last resort for the public sector and no common macroeconomic stabilization mechanisms. The lack of risk-sharing mechanisms is per se a major source of redenomination and default risks and thus it makes the euro area prone to financial market segmentation along national borders and ultimately weaker. At the same time, greater structural convergence has to be achieved through structural reforms and fiscal prudence in order to reduce the likelihood of future negative idiosyncratic shocks in currently vulnerable countries. Notwithstanding some progress towards a politically viable solution encompassing both responsibility and solidarity, a number of important issues remain controversial. This short article summarizes the debate and introduces some of these controversial issues, ranging from the correct role of market discipline when markets are prone to self-fulfilling prophecies and multiple equilibria, to the (dis)advantages of sovereign debt restructuring mechanisms based on rules rather than discretion, from the pros and cons of new safe assets in the euro area to the primacy of coping with debt legacy problems, and the like.

Keywords: euro area; European economic governance; risk-sharing

References

  • Alcidi, Cinzia, Paolo D’Imperio, and Gilles Thirion. 2017. “Risk-sharing and Consumption-Smoothing Patterns in the US and the Euro Area: A Comprehensive Comparison.” CEPS Working Document 2017/04, May.Google Scholar

  • Asatryan, Zareh, Xavier Debrun, Annika Havlik, Friedrich Heinemann, Martin G. Kocher, and Roberto Tamborini. 2018. “Which Role for a European Minister of Economy and Finance in a European Fiscal Union?” EconPol Policy Report 05/2018.Google Scholar

  • Baglioni, Angelo, and Massimo Bordignon. 2018. Sovereign Debt Restructuring: Rules Versus Discretion, LUISS School of European Political Economy Policy Brief, July 19, 2018.Google Scholar

  • Bénassy-Quéré, Agnes, Mark Brunnermeier, Henrik Enderlein, Emmanuel Farhi, Marcel Fratzscher, Carl Fuest, Pierre-Olivier Gourinchas, Philippe Martin, Jean Pisani-Ferry, Helen Rey, Isabel Schnabel, Nicolas Véron, Beatrice Weder di Mauro, and Jeromin Zettelmeyer. 2018. “Reconciling Risk Sharing with Market Discipline: A Constructive Approach to Euro Area Reform,” CEPR Policy Insight No. 91.Google Scholar

  • Berger, Helge, Giovanni Dell’Ariccia, and Maurice Obstfeld. 2018. “Revisiting the Economic Case for Fiscal Union in the Euro Area.” Departmental Paper No.18/03, International Monetary Fund.Google Scholar

  • Bini Smaghi, Lorenzo. 2018. “A Stronger Euro Area through Stronger Institutions,” VoxEU.org, 9 April 2018, https://voxeu.org/article/stronger-euro-area-through-stronger-institutions.

  • Bonatti, Luigi, and Andrea Fracasso. 2013. “The German Model and the European Crisis.” JCMS: Journal of Common Market Studies 51: 1023–1039.Web of ScienceGoogle Scholar

  • Buti, Marco, Gabriele Giudice, and José Leandro. 2018. Deepening EMU Requires a Coherent and Well-Sequenced Package, VoxEU.org, 25 April 2018 https://voxeu.org/article/deepening-emu-requires-coherent-and-well-sequenced-package.

  • Cœuré, Benoît. 2017. Convergence Matters for Monetary Policy. Speech at the Competitiveness Research Network (CompNet) conference on “Innovation, firm size, productivity and imbalances in the age of de-globalization” in Brussels, 30 June 2017.Google Scholar

  • Corsetti, Giancarlo, Lars Feld, Philippe R. Lane, Lucrezia Reichlin, Helen Rey, Dimitri Vayanos, and Beatrice Weder di Mauro. 2015. “A New Start for the Eurozone: Dealing with Debt,” in Monitoring the Eurozone, Vol. 1. London: CEPR Press.Google Scholar

  • Cottarelli, Carlo. 2016. “A European Fiscal Union: The Case for a Larger Central Budget.” Economia Politica 33 (1): 1–8.Web of ScienceGoogle Scholar

  • Draghi, Mario. 2018. Hearing of the Committee on Economic and Monetary Affairs of the European Parliament https://www.ecb.europa.eu/press/key/date/2018/html/ecb.sp180709.en.html Brussels, 9 July 2018.

  • Feld, Lars. 2018. Whither a Fiscal Capacity in EMU, VoxEU.org https://voxeu.org/article/whither-fiscal-capacity-emu, 31 July 2018.

  • Frieden, Jeffry, and Stefanie Walter. 2017. “Understanding the Political Economy of the Eurozone Crisis.” Annual Review of Political Science 20 (1): 371–390.Web of ScienceGoogle Scholar

  • IMF. 2017. Euro Area Policies, Article IV Consultation. IMF Country Report 17/235, Washington, DC.Google Scholar

  • Obstfeld, Maurice. 2013. Finance at Center Stage: Some Lessons of the Euro Crisis. European Economy. Economic Papers 493.Google Scholar

  • Pâris, Pierre, and Charles Wyplosz. 2014. PADRE: Politically Acceptable Debt Restructuring in the Eurozone, Geneva Report on the World Economy Special Report No 3, CEPR Press.Google Scholar

  • Pisani-Ferry, Jean, and Jeromin Zettelmeyer. 2018. “Could the 7+7 report’s proposals destabilise the euro? A response to Guido Tabellini.” VoxEU.org, 20 August 2018 https://voxeu.org/article/could-77-report-s-proposals-destabilise-euro-response-guido-tabellini.

  • Sapir, Andre 2016. “The Eurozone Needs Less Heterogeneity,” in How to Fix Europe’s Monetary Union: View of Leading Economists, edited by R. Baldwin, and F. Giavazzi. London: CEPR Press.Google Scholar

  • Schelkle, Waltraud. 2017. The Political Economy of Monetary Solidarity. Oxford: Oxford University Press.Google Scholar

  • Sinn, Hans-Werner. 2018a. The Perils of European Deposit Insurance Project Syndicate May 25, 2018 https://www.project-syndicate.org/commentary/european-deposit-insurance-moral-hazard-by-hans-werner-sinn-2018-05.

  • Sinn, Hans-Werner. 2018b. The ECB’s Fiscal Policy. CESifo Working Paper No. 7019.Google Scholar

  • Tabellini, Guido. 2018. Risk Sharing and Market Discipline: Finding the Right Mix, VoxEU.org, 16 July 2018 https://voxeu.org/article/risk-sharing-and-market-discipline-finding-right-mix.

About the article

Published Online: 2018-09-20


Citation Information: The Economists’ Voice, 20180024, ISSN (Online) 1553-3832, DOI: https://doi.org/10.1515/ev-2018-0024.

Export Citation

©2018 Walter de Gruyter GmbH, Berlin/Boston.Get Permission

Comments (0)

Please log in or register to comment.
Log in