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Symposium 2013

Holistic Approaches to Solve the Euro Crisis

The Challenge

Fourteen years after its foundation, the European Monetary Union (EMU) is facing the greatest challenge of its history thus far. High unemployment in a number of member countries, the need for substantial consolidation of the budgets of numerous governments, and distressed banks are symptoms of economic misalignments and economic policy failure that threaten not only economic prosperity in Europe, but the European project as a whole. A series of interrelated fiscal and financial crises in the euro area have provoked a series of extraordinary policy measures. Some of these measures have undermined the fiscal sovereignty of affected countries, and they have circumvented market mechanisms. As social cohesion is called into question in various debtor countries, there is a danger that policy makers cannot or will not solve the existing problems in a way consistent with both monetary stability and the current political integration. The ECB’s announcement to possibly step in via its OMT-program has somewhat calmed down financial markets since mid-2012, but most of the fundamental questions for the future of Europe are either unanswered or answered quite differently by various parties. Policy makers have bought time, but the question remains what this time is used for and where the current policy stance leads to.

The euro area crisis is a major challenge both to policy makers and to social sciences. Various inter- woven economic dimensions and rivaling political demands complicate the design of a viable solution. Key questions to tackle are: Is there a common view on the roots of the crisis (diagnostic consensus)? What are the relevant alternatives in the current situation (scenarios and therapies)? To what extent have anti-crisis measures and their consequences (e.g. Target2 balances) narrowed down the set of future policy options? What should economic governance in the euro area look like once the crisis is over? Does a monetary union necessarily imply fiscal union and common economic governance? Where are the borderlines between policy cooperation and policy competition in the future EU? What criteria should be applied to assign competencies between the national and the European level? How to reconcile short-run emergency measures with the long-run architecture of the European policy framework? Are euro bonds a workable anti-crisis instrument or a burden for future fiscal and economic stability? What role should the European Central Bank play – back to Maastricht as soon as possible or even increasing its stimulus packages by intervening aggressively in capital markets? How to cope with various legacy problems or, put more generally, how to make sure that each country’s status-quo does not prevent solutions beneficial to all member countries? Who should carry the burden of past errors and future financial failures: tax payers or investors? Is euro area-wide solidarity a conditio-sine-qua-non or are orthogonal solutions in view that leave a surplus to reap by each party? Who are the most important players and political authorities to involve? And, last but not least, what is the role of market mechanisms that policy makers cannot or should not ignore?

This session is a platform to bring together alternative holistic approaches (policy packages) to ad-dress the current crisis and to shape Europe’s future governance structures. By discussing assumptions, strengths, and weaknesses of each approach this session envisages making a significant contribution to the European policy debate. Ideally, by identifying parallels and complementarities between different plans, this session will enrich each proposal and stimulate efforts to draft even more comprehensive policy solutions for the future of Europe.

This session is part of the issue cluster "Fiscal and Financial Sustainability" and organized in cooperation with The Institute for New Economic Thinking.

    Solutions

    Solution
    Symposium 2013

    Fiscal sustainability requires permanent national fiscal rules and a temporary eurozone fiscal relief mechanism

    Fiscal sustainability requires permanent national fiscal rules and a temporary eurozone fiscal relief mechanism

    Fiscal sustainability requires permanent national fiscal rules and a temporary eurozone fiscal relief mechanism

    Polity, Academia, Business, Civil Society
    Solution
    Symposium 2013

    Establish a truly integrated eurozone-wide banking market by immediate adoption of uniform banking regulation/refinancing standards

    Establish a truly integrated eurozone-wide banking market by immediate adoption of uniform banking regulation/refinancing standards

    Establish a truly integrated eurozone-wide banking market by immediate adoption of uniform banking regulation/refinancing standards

    Polity, Academia, Business, Civil Society
    Solution
    Symposium 2013

    Bank resolution in Europe should involve systematic bail-ins via contingent conversion of debt to equity

    Bank resolution in Europe should involve systematic bail-ins via contingent conversion of debt to equity

    Bank resolution in Europe should involve systematic bail-ins via contingent conversion of debt to equity

    Polity, Academia, Business, Civil Society
    Solution
    Symposium 2013

    Implement comprehensive structural labor and product market reforms to achieve high and sustainable employment and productivity growth

    Implement comprehensive structural labor and product market reforms to achieve high and sustainable employment and productivity growth

    Implement comprehensive structural labor and product market reforms to achieve high and sustainable employment and productivity growth

    Polity, Academia, Business, Civil Society

    Proposals

    Proposal
    Symposium 2013

    The Kiel Policy Package to address the EMU crisis: Restoring prosperity based on fiscal federalism and monetary stability

    Guided by the principles of fiscal federalism (preserving national fiscal sovereignty) and monetary stability (narrow policy mandate for the central bank) the Kiel Policy Package focuses on bridging l ...

    Guided by the principles of fiscal federalism (preserving national fiscal sovereignty) and monetary stability (narrow policy mandate for the central bank) the Kiel Policy Package focuses on bridging longer-term considerations for a workable policy framework and the short-term requirements of resolving European legacy problems by a set of ten integrated measures (addressing fiscal policy, financial market regulations, structural reforms and monetary policy) that come with a clear delegation of authority within the euro area. Regaining sound public finances through national fiscal rules — Overcoming the confidence crisis in sovereign debt markets In order to ensure adequate fiscal consolidation while retaining

    Polity, Academia, Business, Civil Society
    Proposal
    Symposium 2013

    Wanted: structural reform in Europe

    Transforming the present encouraging economic news from the euro area into a lasting exit from the crisis and vivid and sustained economic growth requires ambitious policy actions, both at the nationa ...

    Transforming the present encouraging economic news from the euro area into a lasting exit from the crisis and vivid and sustained economic growth requires ambitious policy actions, both at the national and European levels, designed to remove external imbalances, boost the economy’s capacity to generate employment and productivity growth, improve debt sustainability, and reinforce fiscal and financial institutions. Domestic and external economic imbalances were pivotal for the European economic crisis. Much of the cross-border credit flows that coincided with pre-crisis interest rate convergence to very low levels failed to properly take into account economic risks. At the same time they

    Polity, Academia, Business, Civil Society