Time for EU reform or divorce? Unless Brussels makes seven changes, its members will inevitably conclude they are trapped in an untenable marriage.
This system cannot and will not work in the long run: democratic politics ensures its failure. Only by changing the eurozone’s rules and institutions can the euro be made to work. This will require seven changes:
• abandoning the convergence criteria, which require deficits to be less than 3% of GDP
• replacing austerity with a growth strategy, supported by a solidarity fund for stabilisation
• dismantling a crisis-prone system whereby countries must borrow in a currency not under their control, and relying instead on Eurobonds or some similar mechanism
• better burden-sharing during adjustment, with countries running current-account surpluses committing to raise wages and increase fiscal spending, thereby ensuring that their prices increase faster than those in the countries with current-account deficits;
• changing the mandate of the European Central Bank, which focuses only on inflation, unlike the US Federal Reserve, which takes into account employment, growth, and stability as well
• establishing common deposit insurance, which would prevent money from fleeing poorly performing countries, and other elements of a “banking union”
• and encouraging, rather than forbidding, industrial policies designed to ensure that the eurozone’s laggards can catch up with its leaders.
These steps are absolutely necessary to save the Euro and the EU. Let’s see if anyone is even listening.