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The Eurozone’s Solidarity Fallacy

In the name of "solidarity," eurozone reformers have continued to introduce new instruments for sharing risk across member states in the event of another crisis. But what the monetary union needs is not joint liability – and the unacceptable degree of moral hazard that would come with it – but rather risk reduction.

FRANKFURT – Since 2010, many measures have been adopted to “crisis-proof” the eurozone. In addition to tighter budgetary rules and the start of a banking union, new efforts are underway to strengthen the European Stability Mechanism (ESM), which is now meant to serve as a backstop for the Single Resolution Fund (SRF). At a recent Eurogroup meeting, eurozone finance ministers agreed on reforms to allow fundamentally “sound” member states to access “contingent” ESM credit lines if they meet certain conditions, and for all sovereign-bond contracts to include collective-action clauses by 2022.