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Holding the Euro together

Thursday 10 June 2010 - by Tim Gieles and Helena Walsh


Merkel’s sudden and unilateral ban on naked short-selling with the intention to boost confidence is a good example. Immediately after issuing this measure the markets’ reaction was the opposite of a boost in confidence.
CEPS director Gros says: “The eurozone cannot stabilise in political and economic terms without a solid framework for crisis resolution and an ability to deal with sovereign default by a member state.”

To achieve such a solid framework, the EU is working on a system for enhanced supervision and crisis prevention for banks, insurance undertakings and investors. A task force, headed by European Council President Herman Van Rompuy on stronger economic governance is expected to deliver its report in October.

In the long-term, the EU wants to ensure that its economy remains competitive in an increasingly globalised world.

Former Commissioner for the Internal Market Mario Monti was asked to set out the future of the European single market, which is seen as the catalyst behind European integration and sustainable growth. The strategy set out in the Monti report published on 10 May puts an all-encompassing single market at the heart of policymaking.



Monti said: “Achieving a deep and efficient single market is a key factor determining the EU’s overall macroeconomic performance. It is particularly crucial for the solidity of the euro and for monetary union to deliver the promised economic benefits.”

In response to the Monti report, the leader of the Liberal Party in the European Parliament, Guy Verhofstadt says: “In these days the future cohesion of the European Union is at stake and the way ahead will strengthen this cohesion with an enormous financial commitment.”

The Liberals welcomed the calls for strong and coordinated economic governance throughout the EU to prevent future crises, including a European Monetary Fund. An EMF would, according to Gros, have two advantages.
“First, the funding of the EMF should give clear incentives for countries to keep their fiscal house in order at all times. Secondly, and perhaps even more important, the EMF could provide for an orderly sovereign bankruptcy procedure that minimises the disruption resulting from a default.”

The establishment of such a fund could provide the European Union and the eurozone with the necessary framework and stability.

The European Commission is expected to bring forward its proposal on the EMF possibly in June. This will represent a major step forward; the creation of a fiscal union between eurozone members. The testing times are not over and cooperation is essential between members.


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