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Symposium 2013

Solution for 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 substan ...

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.

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

To create a truly eurozone-wide banking market, bank regulation and supervision must follow a unified set of standards in the whole currency area. The setting and monitoring of banking standards should be assigned to a European body independent from the central bank. Also, the refinancing standards must be the same for every bank irrespective of the member state in which it operates. By applying strict, uniform and transparent standards to the collateral used in refinancing operations, access to central bank money will be the same all over the currency area avoiding future waves of massive balance of payment financing via the Eurosystem. Credibility and monitoring of the central banks should be strengthened by comprehensive transparency regulations.

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