Economic and Monetary Union Governance: A Post-Crisis Assessment
Published: December 2011
The global financial crisis has exposed serious flaws in the economic governance of the Eurozone. The crisis has accelerated pre-existing divergence in the performance of member states in terms of economic growth, unemployment and inflation. Economic and Monetary Union (EMU) governance structures have proved ineffective in averting a sovereign debt crisis and in facilitating its management. European Union (EU) decision makers have resorted to new and untested policies, not provided for or envisaged by the EU founding treaties. Rescue loans to Greece and Ireland were crafted on an ad hoc basis so as to overcome the no-bailout clause of EMU. The EU decision to partner with the IMF, an extra-European institution, in the financing of a bailout fund for Eurozone states at risk of defaulting on their debts may be attributable to the dysfunctionalities of EMU institutions. Precrisis assessments that the EMU’s system of economic governance is fit for its purposes warrant re-examination. The effectiveness of the macroeconomic policy design of EMU can be gauged in comparison to that of the United States, an entity of comparable size and weight in the global economy. Reforms to the economic governance of the Eurozone are critical for the future of the Eurozone.