SOME THOUGHTS ON MONETARY AND POLITICAL UNION

We argue that the long run success of the Eurozone depends on the continuing process of political unification. Such a political unification is needed to reduce the scope for asymmetric shocks and to embed the Eurozone in a wider system of political ties that are needed to take care of the divergent economic movements within the Eurozone. In addition, such a political union is necessary to deal with the flaws in the governance of the Eurozone. The major flaw is that while national politicians continue to bear the political responsibility for unfavourable economic developments, key instruments to deal with these have been transferred to European institutions that bear no political responsibility for their decisions. The absence of a “deep ” variable, i.e. a common sense of purpose in the European Union today, makes it unlikely that significant progress in political unification can be made. This will continue to make the Eurozone a fragile regime