A New Architecture for the Single Currency: How to Solve the Euro Crisis

Abstract

The crisis in the Euro Zone is due to two factors: over-borrowing by some states and credit booms in others. The architecture of the Euro remains incomplete, due to lack of enforcement of fiscal discipline and an integrated bank supervision. The paper proposes a staged and comprehensive approach to complete the architecture with four pillars. The relaunch of the Euro needs once more a transition phase with a gradual fiscal and asymmetric adjustment with a decisive intervention by central institutions.

Keywords: Euro, financial crisis, bank regulatory reform, monetary union, European integration

JEL Classification: F33, F36, G28, H60