The Euro Area Crisis: What Went Wrong? What Should be Changed? What Could We Change?

04  October 2010    4:00 pm CEST

Christian Ghymers, Senior Adviser DG ECFIN European Commission and JVI


wiiw, Rahlgasse 3, 1060 Vienna, lecture hall (entrance from the ground floor)


The lecture presents the argument that the euro-area crisis is not so much due to the Maastricht architecture defects but rather to the lack of enforcement and effective surveillance of the Maastricht principles. This argument is made in three steps and leads to a fast solution:1. Presenting the essential of the ex-ante EMU: the philosophy and architecture of the Maastricht Treaty was conceived with fundamental 'asymmetries' compensated by coordination dispositions and an expected integration dynamics supposedly driven by the fears from policymakers of facing risks and costs for living with this 'one-fits-for-all' dimension of the single currency.2. The ex-post EMU: the positive results and advantages of the single currency made policymakers (Commission, Council and Member States) together with their citizens too complacent, turning it against its inner logics: the surveillance, peer-pressures, and Stability and Growth Pact were turned down by free-riding and moral hazard, failing to meet their function and making costly the one-fits-for-all monetary policy.3. The present debates: was Maastricht wrong? No, in the sense that the Treaty was not applied, the asymmetry between single monetary policy and decentralized other economic policies could have worked perfectly if surveillance would have been effective and independent, yes in the sense that the architecture was wrong since surveillance was not shaped and organized as an effective check-&-balances mechanism, but was in the hands of an imbalance construction, a powerful 'judge-&-parts' Council facing a impotent-politically-dependent-Commission. Enforcement went wrong and must be changed, all parties do agree now but do not dare or want to change the Treaty.4. What is feasible? An easy solution does nevertheless exist without changing the Treaty: just create an independent 'Euro Debt Agency' able to issue € bonds (warranted by the euro Member States only when very strict SGP conditions are met) together with a compulsory subordination clause for any sovereign bonds, in order to create visible spreads between warranted EDA €-bonds and national €-bonds. Then, in specific cases, EDA could swap national €-bonds for its own bonds for rewarding fiscal consolidation programmes under strict implementation conditions, while charging back the full market spread when national implementation would derail. So enforcement moves from an EU concern to a national one, and national ownership is ensured but could even be backed by national legislations and complementary fiscal rules.