Can the report of the ‘five presidents’ save the euro?

Abstract

The international financial crisis of 2007/2008 and the ‘Great Recession’ that followed, along with the euro crisis, have highlighted a range of problems and difficulties that are related to some fundamental weaknesses of the euro. There are the well-known difficulties of macroeconomic policies under the Stability and Growth Pact and the more recent Fiscal Compact, including their deflationary nature and the ‘one size fits all problem’ of imposing common deficit requirements on all European Economic and Monetary Union countries. There are also problems with monetary policy in view of the fact that the European Central Bank does not properly possess the functions of a central bank, especially that of lender of last resort. We discuss the reforms that are needed, most important of which is the requirement for a substantial Economic and Monetary Union-level fiscal policy as part of political integration, along with a banking union. In this context the recent proposals of the ‘Five Presidents’ Report’ (European Commission 2015b; see, also, European Council 2012) are relevant and the question is whether they will save the euro. It is concluded that the ‘Five Presidents’ Report’ is unlikely to resolve the deep-seated problems, casting a dark shadow over the future of the euro.