09 Nov 2010

The European Council Summit and the Political Economics of the EMU Crisis

Christian Fahrholz / Cezary Wójcik

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The Conclusions of the European Council on 28-29 October 2010 suggest the need for further consultations among the member states to design a “permanent crisis mechanism” to safeguard the euro area as a whole. This paper finds that the weakness of the current EMU governance is that it neither provides sufficient incentives for curtailing excessive lending and indebtedness, nor secures the level of political integration necessary to attain a sufficient degree of accountability in fiscal affairs. Any solution must address these two major flaws.

Christian Fahrholz is on the faculty of the Graduate Programme on Global Financial Markets of the School of Economics and Business Administration at Friedrich-Schiller-University in Jena. Cezary Wójcik is Professor of Economics at the Warsaw School of Economics.