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

Future of EMU: Political Union

MICHELE CHANG, COLLEGE OF EUROPE

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‘although complete political union is not absolutely necessary, the loss of national sovereignty in economic and monetary policy associated with it would probably be bearable

• nly in the context of extremely

close and irrevocable political integration’ (Pöhl 1989)

Identity

• shared

history, culture, language, values

 Centralized governance -

accountability

Money

• Functional

logic

• Side

payments

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EMU and political union: 2 steps forward, 1 step back

1961 monetary union— second stage of Common Market Early 1970s Werner Plan and the Snake 1979 European Monetary System 1986 Single European Act 1989 Delors Report

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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

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Monetary union without political union: OHIO principle

FIN

National supervision

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MON

Maa Convergence Criteria No bailout clause Independent ECB, no monetary financing

FISC

• Stability

and Growth Pact

ECO

• Under
• pen

method

• f coord-

ination

EMU 1.0

The euro crisis and involuntary integration: revenge of the functionalists

No bailout clause European Stability Mechanism No monetary financing  ECB as quasi-lender

• f last resort

National financial supervision  banking union

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‘although complete political union is not absolutely necessary, the loss of national sovereignty in economic and monetary policy associated with it would probably be bearable only in the context of extremely close and irrevocable political integration’ (Pöhl 1989)

Identity

• shared

history, culture, language, values

 Centralized governance -

accountability

Money

• Fiscal union

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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?

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