Future of EMU: Political Union MICHELE CHANG, COLLEGE OF EUROPE 1 - PowerPoint PPT Presentation

Future of EMU: Political Union MICHELE CHANG, COLLEGE OF EUROPE 1

‘although complete political union is not absolutely necessary, the loss of national Money Identity sovereignty in economic and • Functional • shared monetary policy associated with logic history, culture, • Side it would probably be bearable language, payments only in the context of extremely values close and irrevocable political  Centralized integration’ (Pöhl 1989) governance - accountability 2

EMU and political union: 2 steps forward, 1 step back 1979 1961 monetary union— European 1989 second stage of Common Monetary Delors Market System Report Early 1986 1970s Single Werner European Plan and Act the Snake 3

Some expectations Optimum currency area : mobility of factors of production, dealing with exogenous shocks Coronation theory : economic convergence  solidarity Chartalism : money as social relationship between creditor and debtor  EMU needs centralized, legitimate taxation of EU citizens Neofunctionalism and spillover 4

Monetary union without political union: OHIO principle EMU 1.0 ECO FIN FISC MON Maa Convergence • Under • Stability National Criteria open and supervision method Growth No bailout clause of coord- Pact ination Independent ECB, no monetary financing 5

The euro crisis and involuntary integration: revenge of the functionalists No bailout clause  No monetary financing National financial  ECB as quasi-lender supervision  banking European Stability Mechanism of last resort union 6

‘although complete political union is not absolutely necessary, the loss of national Money Identity sovereignty in economic and • Fiscal union • shared monetary policy associated with it history, culture, would probably be bearable only in language, the context of extremely close and values irrevocable political integration’  Centralized (Pöhl 1989) governance - accountability 7

EMU and political union today Functional logic of monetary union but rejection of centralization: banking union and ESM strong intergovernmental elements BUT Criticism of legitimacy of euro area institutions and policies vs Rising popularity of euro Risk sharing versus risk reduction divide has slowed further integration: euro area budget and completion of banking union Differentiated integration within the euro area? 8