Is EMU prepared for the next crisis?


It is inevitable that sooner or later the eurozone, or parts of it, will experience another crisis. The Economic and Monetary Union (EMU) is now equipped with additional tools to cope with economic crises, foremost the ESM (European Stability Mechanism), but will these suffice? Many economists have argued that the eurozone requires its own fiscal capacity in order to deal with large asymmetric shocks and that the ESM in its current form will not serve. A CEPS-Intereconomics conference on a Fiscal Stabilisation Function for the Euro Area, held at CEPS on April 20th, aimed to showcase the most promising schemes to build a fiscal stabilisation function. A European unemployment insurance scheme was at the forefront of the debate, receiving much appraisal throughout the day. Concerns were voiced that before this type of risk-sharing can occur, we first need risk reduction in order to make it more politically acceptable. Others argued that risk-sharing would already help to reduce risk and restore confidence in the governance structure of EMU. In the end the eurozone is tasked with finding an arrangement that addresses concerns of moral hazards but at the same time does not water down the scheme to such an extent that it loses its purpose and effectiveness. All speakers agreed that this is an uncertain, long-term project, but that the academic debate needs to take place now.