As crises unfold, structural and governance issues tend to become more and more important. And the objectives of economic policy are increasingly ambitious, both on the fiscal and monetary fronts. The governments and the ECB are in an impossible situation. The “old rules”, be it the Taylor rule for the ECB or the rules of the Stability and Growth Pact are outdated. That said, the absence of rules can lead to increased financial and macroeconomic volatility. Only “new rules”, which have yet to be invented, will enable monetary and fiscal policy to meet the new challenges. It is up to the EU Member States to define, as a priority and in a concerted manner, the major strategic orientations.
Structural and governance issues have become increasingly prominent from one crisis to the next. One of the thorniest issues in the Eurozone is fiscal policy, which remains the Achilles’ heel of the European construction. The Eurozone is an incomplete monetary union, with a notoriously inefficient combination of a single monetary policy with independent fiscal policies that are too often left uncoordinated. And it is precisely during crises that we see just how inefficient the institutional framework is.
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