Economic diversity should be seen as an opportunity for EMU

 

At the height of the crisis, some commentators and politicians argued that euro area member states were too economically heterogeneous to form a lasting union. Speaking at CEPS on July 3rd, Professor Waltraud Schelkle of the London School of Economics took exception to this view, countering that diversity is precisely what makes the Union strong. In her recent book, The Political Economy of Monetary Solidarity - Understanding the Euro Experiment, Professor Schelke highlights the need for political cooperation to fully exploit the gains from such diversity, through risk-sharing. She argues that political-economic tensions, which have led to lack of or narrow cooperation, explain why potential gains from EMU have been limited until now. This will continue to be the case in spite of the steps taken towards more risk-sharing through the creation of the European Stability Mechanism, the use of new monetary policy tools and the (until now partial) Banking Union.