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We need a European Monetary Fund, but how should it work?
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We need a European Monetary Fund, but how should it work?

André Sapir and Dirk Schoenmaker
Bruegel, 2017
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Editorial Rating

8

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Recommendation

Over time, banking and sovereign debt crises have laid bare the original design flaws in the European Monetary Union (EMU), which sorely needed a blueprint to guide the region through financial tumult. According to this cogent essay by economists André Sapir and Dirk Schoenmaker, a transformation of the European Stability Mechanism – by expanding its responsibilities and reforming its governance – into a European Monetary Fund would help close gaps in the EMU edifice. getAbstract recommends this succinct but innovative text to policy analysts and experts.

Summary

The Maastricht Treaty, the foundation for the European Monetary Union (EMU), lacked measures to address bank collapses and sovereign debt failures that could affect the region as a whole. Under the agreement, each member nation would fend for itself in the event it suffered a financial crisis. In this “EMU 1.0,” no provisions addressed liquidity or solvency issues across the group, nor did banks within the region share a process for risk monitoring. 

But subsequent economic problems in individual countries had severe impacts on the financial well-being of the entire bloc. Leaders then advanced...

About the Authors

André Sapir and Dirk Schoenmaker are economists with Bruegel, a European think tank.

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