The eurozone needs to be reformed – many political actors in the currency union agree about this. In recent years, after all, the European sovereign-debt and banking crisis revealed the glaring constructional defects in the architecture of the European Monetary Union, including largely ineffectual sanction mechanisms. The result has been widening economic divergence and mounting liability risks across the Community, giving rise to the impression in many euro area member countries that there is an increasing imbalance between “give” and “take”.
In order to establish whether eurozone membership does generate added value, as critics sometimes claim it does not, the economic risks of being a member of the EMU need to be weighed against the advantages of using the common European currency. On the one hand, the claims on EMU debtor countries arising above all from the rescue programmes and Target 2 balances would give rise to not inconsiderable fiscal risks in the event of an EMU exit. On the other hand, especially the export-strong core countries are benefiting from barrier-free sales markets characterised by low transaction costs and by a common security policy. More specifically, Germany’s average current-account surplus has corresponded to 4.8% of GDP since the launch of the European Monetary Union; in the two decades prior to 1999, by contrast, the average surplus on the Federal Republic’s current account amounted to just 0.8% of aggregate economic output. To date, the economic advantages of euro area membership for the core countries have probably easily outweighed the potential costs.
Even though euro area membership has created a great deal of additional value, it is imperative that the currency union should be reformed so as to guarantee the future viability of this institution. One much-discussed proposal in this regard involves converting the European Stability Mechanism (ESM) into a European Monetary Fund (EMF). However, opinions differ greatly regarding how such an entity ought to be concretely configured – conceptions of a possible EMF range from a supervisory-policy control mechanism to an unconditional bailout fund. A politically independent EMF capable of being assertive – a “sharp sword“ on the ECB model, monitoring and, if necessary, enforcing economic discipline on eurozone member states – would be a correct approach. Given, however, that an EMF with such a structure would presumably not gain a political majority, a compromise solution could take the following form: the core countries accept greater Community-related and financial responsibility; in return, all national parliaments are granted a right of veto over EMF Directorate decisions – especially those concerning the provision of fresh bailout funds. Such a solution would still ensure a win-win situation: the eurozone periphery would continue to profit from the favourable credit standing of the Community as a whole, while the core countries would be able to demand the compliance with the rules agreed.