The Sovereign Behind the Euro

Duisenberg School of Finance Policy Paper No. 15

12 Pages Posted: 3 Sep 2011

See all articles by Jaap Hoeksma

Jaap Hoeksma

Euroknow

Dirk Schoenmaker

Rotterdam School of Management, Erasmus University; Erasmus Research Institute of Management (ERIM); Centre for Economic Policy Research (CEPR)

Date Written: September 2, 2011

Abstract

The euro is widely believed to be a currency without a sovereign state. To make the euro a stable currency, many commentators recommend a move to a federal fiscal Europe by issuing eurobonds or levying European taxes. By contrast, we argue in this paper that the EU and the euro area member states are the joint sovereign behind the euro. The EU is not a state, but has evolved into a democratic polity of states and citizens, in which the sovereignty is shared and pooled. Consequently, the euro should be regarded as a currency beyond the state.

For the euro to have a stable sovereign, however, further political and fiscal reforms are needed. First, some, albeit limited, fiscal sovereignty needs to be shared under a credible stability mechanism operating between member states. The donor countries ought to sign up to a stability fund of sufficient size. The recipient country will have to accept temporarily suspension of sovereignty over the control over its economic policies (conditionality). Next, political decision-making should be sped up. While sufficiently large amounts should be assigned ex ante to the stability fund, releases by the fund must be made by Qualified Majority Voting (QMV) rather than by unanimity.

Keywords: euro, monetary sovereignty, fiscal sovereignty, financial stability

JEL Classification: E50, G21, H60

Suggested Citation

Hoeksma, Jaap and Schoenmaker, Dirk, The Sovereign Behind the Euro (September 2, 2011). Duisenberg School of Finance Policy Paper No. 15, Available at SSRN: https://ssrn.com/abstract=1921543 or http://dx.doi.org/10.2139/ssrn.1921543

Jaap Hoeksma

Euroknow ( email )

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Dirk Schoenmaker (Contact Author)

Rotterdam School of Management, Erasmus University ( email )

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HOME PAGE: http://www.rsm.nl/people/dirk-schoenmaker/

Erasmus Research Institute of Management (ERIM) ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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