Joint IES and ECONPOL policy forum on future perspectives for the EMU

The Institute for European Studies (IES) of the Vrije Universiteit Brussel (VUB) and the EconPol research network co-organised a policy forum on 16 April about the future perspectives for the European Economic and Monetary Union (EMU), as part of the Jean Monnet Chair at IES. 

The future of the EMU is at the core of the reflection on the future of European integration; the debate about its architecture has accompanied the entire evolution of the EU and several proposals have been made in the past. The policy forum stimulated an open, broad and deep discussion on the possible options for the future of the EMU, starting from the assessment of the existing proposals. Three high level speakers, who combine an academic perspective with a direct knowledge of the political context, László Andor, Clemens Fuest, and Vesa Vihriälä, engaged in a rich discussion, chaired by Paolo Pasimeni, on the macroeconomic and political implications of the monetary union and its possible evolution.

The original assumption that the monetary union would lead to political integration has been challenged, as divergences increased in the EU and different cleavages appear: between northern and southern or eastern and western countries, and as a member decides to leave the Union. Recent proposals try to bridge the gaps between different visions for the future of the EMU, with an inverse relation between degrees of ambition and of political realism. 

The political sustainability of the monetary union will ultimately depend on the capacity of the people to accept that internal devaluation remains the main adjustment tool, as long as ambitious moves towards common instruments for macroeconomic stabilisation are missing. How long can this last? Some German academics have openly discussed the possibility of establishing an “exit clause” for countries willing to resort to the exchange rate adjustment in case of crisis, others fear that this would lead to self-fulfilling prophecies and increase systemic risk in the currency union.

The current incomplete macroeconomic setup of the EMU, with a common monetary policy but clearly separated fiscal and structural policies at national level, was nevertheless agreed at Maastricht, therefore accepted “as such”; many economists and political leaders, however, claim that the status quo is not sustainable without important reforms to complete its architecture.

Participants did not agree on a single defined set of measures which are both politically feasible and economically sufficient. What they agreed upon, nevertheless, was that the long term sustainability of the monetary union is at stake.