COPENHAGEN – Europe’s sovereign-debt problems have prompted a search for more effective approaches to economic governance in the European Union, particularly in the euro area. Having mounted exceptional efforts, first to provide financing for Greece’s adjustment program, and then to create a safety net for other distressed countries, the European Council established a task force, chaired by President Herman van Rompuy and composed largely of EU finance ministers, to make proposals for reform.
The van Rompuy Task Force will submit its final report in October, but we can anticipate its conclusions in the light of the current system’s major shortcomings.
At the euro’s planning stage, most observers fell into two camps. Some believed that the absence of political union – reflected in the euro’s lopsided design, which centralized monetary authority but left budgetary and other economic policies (largely) in national hands – would ensure the common currency’s failure. Others believed that the euro itself would trigger political unification.
Neither view has come close to reality so far – and it remains unclear whether the current proposals will settle the issue, in particular by clarifying what elements of political union are essential for the euro’s survival.