Macro Focus - June 2020
Fixing the EU, again

  • Finally, there is a will to create a fiscal capacity at EU level
  • The ECB will remain the most important EU institution
  • Problematic setup for countries like Sweden, that fall in between if integration deepens

 Yet again Europe is in crisis management mode. Until now the European Central Bank has been the only force that has held Europe together, but the severity of the economic shock has once again exposed the incompleteness of the currency union, and along with that problems that cannot be fixed by monetary policy. The pandemic, it seems, has finally created the political will to create a real, albeit temporary, fiscal capacity at the union level.

In 1976 Jean Monet famously said that

“Europe will be forged in crises and will be the sum of the solutions adopted for those crises.”

In 2001, Romano Prodi, the then EU commission president, said

“I am sure the Euro will oblige us to introduce a new set of economic policy instruments. It is politically impossible to propose that now. But some day there will be a crisis and new instruments will be created”.

These quotes nicely summarize the current setup; The design of the currency union was flawed from the outset. The creators of the Euro knew this, but they achieved what was politically possible at the time and hoped that the design of economic institutions would be completed as the monetary area encountered a crisis. And their hopes were not completely unfounded. In the last crisis the Euro area gained a central bank willing to act as a lender of last resort, now in the current crisis common fiscal policy is on the horizon.

PDF-Document Full report here (pdf)

For more information please contact 

Nerijus Mačiulis,, +370 5 258 2237

Heidi Schauman,, +358 50 328 1229

Vytenis Šimkus +370 687 17870

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