This Policy Brief argues that some important considerations are missing in the current heated debate in the eurozone on bail-outs and bail-ins, the size of liquidity facilities and the terms of a crisis resolution mechanism. It is organised in three sections, the first of which surveys the diverse outcomes since the launch of the euro. This illustrates how the benefits the euro can generate depend on the degree of openness, flexibility and income correlation among euro area countries: these are economic concepts which over time are affected by policies. The second section reviews the main failings and fault lines that brought about the current sovereign crisis. The third section postulates that to exit the crisis we need to unravel the factors behind each fault line. The author argues that the achievements of EMU are to some extent interlinked with the crisis and stresses the need to explain what EMU can and cannot do and the rationale for its unique governance.
Francesco Paolo Mongelli is Senior Adviser in the Monetary Policy Directorate at the ECB, and honorary Professor at the Johann Wolfgang Goethe University of Frankfurt.