EMU 2.0?

BRUSSELS – For a year, European policymakers have been busy fixing bugs in the design of Economic and Monetary Union (EMU). As with defective software, they have introduced successive new versions of EMU at a frantic pace – only to discover remaining vulnerabilities shortly afterwards. After two summits in March, however, European officials claim to have produced an enhanced, bug-free version. Can we trust them this time?

Answering that question starts at the origin of all of EMU’s troubles: crisis-prevention. Before 2010, it was almost entirely based on surveillance of budgetary deficits, which was conducted within the framework of the Stability and Growth Pact (a procedure for broad economic surveillance existed as well, but lacked political traction). The crisis revealed major enforcement problems with this framework, but also major design problems: no light ever flashed red to indicate that Ireland or Spain was in danger.