Opinion & Analysis

Priorities for euro area governance reforms. How to establish a stable basis for renewed growth and employment, by A.Sapir and G.B. Wolff

Spring has brought signs of economic recovery to the euro area. This is obviously good news, especially for the millions of unemployed who need growth to increase their hopes of finding a job. But recovery has also its dark side. It has lowered the appetite of EU and national politicians to continue the process of euro area reform that they launched at the height of the crisis. Yet euro area economic governance remains unsatisfactory. The banking union was a major achievement, but it remains unfinished Besides improving banking union, two other subjects require urgent attention to calm fears about weak euro area governance: better fiscal governance and a mechanism to ensure competitiveness despite the absence of the exchange rate instrument. The euro area requires a fiscal governance system that ensures two objectives: the fiscal sustainability of its members, and co-ordinates an appropriate area-wide fiscal stance that supports the ECB’s monetary policy geared towards price stability.  We propose five measures.