However, the latest developments since the 2008 crisis have pointed to several errors in the construction of the EMU. Whereas monetary policy in the Euro area was unified, member states had different economic policy approaches. The Maastricht Treaty’s obligations governing debt limits were insufficient, and yet member states did not even comply properly. In addition, financial markets in the Euro area did not have a unified supervisory body. The result was excessive macroeconomic unevenness in trade balances, public budgets, and debt – all of which had a destabilising effect on the EMU. The EMU was unable to keep the promise of greater convergence among member states.
A well-functioning economic and monetary area is essential for Germany, and bold reforms must be implemented to complete the EMU. In the Five Presidents’ Report on Completing the EMU, the presidents of the European Commission, the European Parliament, the European Council, the European Central Bank and the Eurogroup present proposals for such reforms. Progress has already been made on the joint supervisory body within the Banking Union, and it is now time to continue to drive forward convergence of EMU member states and implement stabilising mechanisms. The European Semester has proved to be an effective diagnostic tool for identifying macroeconomic imbalances. However, member states should implement corresponding country-specific recommendations with greater vigour.
In the short term, the priority should be to consolidate budgets to create room for fiscal policy measures in hard times. Also needed are coordinated efforts across the Euro area to ensure that general fiscal policy in the EMU is on the right track, and structural reforms aimed at converging per-capita income in member states. The Capital Markets Union can also help to develop the EMU’s crisis resistance by deepening and integrating national capital markets.
The EMU is and continues to be a successful model despite all of its setbacks. Like any institution, it needs to be re-imagined and further developed now and then. The present day presents a unique opportunity for doing so, given a sound economy with low interest rates, affordable oil prices, and a low Euro exchange rate. Intelligent reforms can help to greatly soften the impact of future crises and avoid the type of damage to prosperity seen after the 2008 crisis. In the long term, the EMU has the potential and declared goal of persuading every EU member state of its value as a unique and successful project.