Leading French and German economists, among them Henrik Enderlein, director of the Jacques Delors Institut – Berlin, have published a joint set of proposals on how to reform the Eurozone. Reconciling risk sharing with market discipline: A constructive approach to euro area reform, was originally published on 17 January by the Centre for Economic Policy Research (CEPR).
The authors intend to bridge existing disagreements among euro area members on the direction that reforms should take. France (along with other member states such as Italy) has long been calling for additional stabilisation and risk-sharing mechanisms. In contrast, Germany (along with other members such as the Netherlands) continues to claim that what is really needed is tougher enforcement of fiscal rules and more market discipline.
To overcome this deadlock, the authors propose measures that take up arguments from both sides. Despite differing views and political sensitivities, they share the conviction that reform of the euro area is needed for three reasons: to reduce financial instability; to provide incentives that encourage prudent, growth-enhancing macroeconomic policies and deliver growth-enhancing domestic reform; and to remove a continuing source of division among euro area countries.
Reforms are overdue. While the need to improve the architecture of the euro area remains as strong as ever, no meaningful reform has been enacted since the 2014 creation of the Single Resolution Mechanism.
The authors of the CEPR paper are Agnès Bénassy-Quéré, Paris School of Economics and University of Paris 1; Markus Brunnermeier, Princeton University; Henrik Enderlein, Hertie School and Jacques Delors Institute Berlin; Emmanuel Farhi, Harvard University; Marcel Fratzscher, DIW and Humboldt University Berlin; Clemens Fuest, Ifo Institute and University of Munich; Pierre-Olivier Gourinchas, University of California at Berkeley; Philippe Martin, Sciences Po, Paris and Conseil d’Analyse Économique; Jean Pisani-Ferry, Bruegel, EUI, Hertie School and Sciences Po; Hélène Rey, London Business School; Isabel Schnabel, University of Bonn and German Council of Economic Experts; Nicolas Véron, Bruegel and Peterson Institute for International Economics; Beatrice Weder di Mauro, INSEAD and University of Mainz; and Jeromin Zettelmeyer, Peterson Institute for International Economics.