Creating a decentralised Eurozone

A decade after the crisis that came close to destroying it, the Eurozone remains fragile. Fiscal indiscipline, a key cause of the crisis, remains a relevant issue. Progress has been made to make the banking system safer, but much more is required to contain risk. Eurozone governance remains weak. This paper argues that six key steps are required to refashion the Eurozone into a robust monetary union capable of dealing with unexpected shocks in the future. These steps are:

• Subsidiarity should be rigorously applied to straighten the existing muddled governance structures
• Banking Union needs to be completed to break the doom loop between banks and governments
• Pan-European banks and fully integrated financial markets offer the best solution to absorb national disturbances. Implicit protectionism – through regulations and support for national champions – should not be accepted
• The responsibility for fiscal discipline must lie where the budget authority is exercised: at the national level
• The no-bailout clause is the best protection against fiscal indiscipline. It should be formally restored
• Some countries with large public debts remain vulnerable to market sentiment fluctuations. However, there are ways to reduce these debts without any transfer or mutual guarantees

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