The Fragility of the Eurozone’s Institutions

The introduction of the euro in 1999 is without any doubt one of the great achievements in the European integration process. In one bold stroke national monetary sovereignty was abolished and transferred to a new European institution, the European Central Bank (2009) that from then on became the guardian of the new currency. The skeptics, and it must be admitted most of us economists were skeptic, were proven wrong. Despite this success, the Eurosystem remains a fragile construction. Problems of governance of the Eurosystem exist and should be resolved so as to ensure its long-term survival. In this paper we discuss some of these governance issues (For more extensive surveys of these issues see Baldwin andWyplosz (2006), Bruegel (2008) and European Commision (2008)). The first one deals with the objectives of the ECB and its singular focus on inflation. We discuss this in Section 2. Next we discuss the governance issues that arise from the absence of a political union (Sections 3 to 5). We will argue that political union is essential for the long-term survival of the eurozone.status: publishe