To promote international trade and to become an important currency on the world market the euro was developed. The name euro was officially adopted 16-12-1995 and the currency was introduced to world financial markets as an accounting currency 1-1-1999. Euro coins
and banknotes entered circulation 1-1-2002.

The euro is managed and administered by the Frankfurt-based European Central Bank
and the Eurosystem (the central banks of the eurozone countries). As an independent central bank, the ECB has sole authority to set monetary policy (*).

The Eurosystem participates in printing, minting and distribution of notes and coins in
all member states, and operation of the eurozone payment systems.

(*) Monetary policy is the policy adopted by the monetary authority of a country that controls either the interest rate payable on very short-term borrowing or the money supply, often targeting inflation or the interest rate to ensure price stability and general trust in the currency. Further goals of a monetary policy are usually to contribute to the stability of gross domestic product, to achieve and maintain low unemployment, and to maintain predictable exchange rates with other currencies. Monetary economics provides insight into how to craft an optimal monetary policy. In developed countries, monetary policy has been generally formed separately from fiscal policy, which refers to taxation, government spending, and associated borrowing.


In 1939, the US considered its monetary policy in the light of the then turbulence and drafted 'A Program for Monetary Reform':

"The great task confronting us today is that of making our American system, which we call “democracy”, work. No one can doubt that it is threatened. However, the danger lies less in the propaganda of autocratic Governments from abroad than in the existence, here in America, of ten millions of unemployed workers, sharecroppers living barely at subsistence level, and hundreds of thousands of idle machines. On such a soil fascist and communist propaganda can thrive. With full employment such propaganda would be futile.

The important objective, therefore, is to repair and rebuild our economic system so that it will again employ our productive resources to the fullest practicable extent. A high scale of living for our people will better protest our cherished American democracy than will all the speeches and writing in the world.

Our problems are not simple and w can offer no panacea to solve them. We believe, however, that certain fundamental adjustments in our economy are essential to any successful attempt to bring our idle men, materials, land and machines together. These fundamental adjustments would, we believer, be facilitated by the monetary reform here proposed."


EU budget (European Financial Framework) | scenarios for the eurozone | THE PARADOX OF A STRONGER GLOBAL ROLE FOR THE EURO | The idea of an Economic and Monetary Union | DASHBOARD | digital euro | great recession | quantitative easing | warnings against the implementation of the euro


Countries that adopted the euro: Austria, Belgium, Croatia (from 1-1-2023), Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Portugal, Slovakia, Slovenia, Spain.

Member States Bulgaria, Denmark, Hungary, Austria, Poland, Romania, Slovakia, the Czech Republic, and Sweden, (still) use their own currency.

  Countries using the euro


  scenarios for the eurozone
The report 'SCENARIOS FOR THE EUROZONE' discusses the future of the euro in the light of the near quarter of a century of experience with Economic and Monetary Union. Has the eurozone lived up to its expectations? How effective have been the steps taken to stabilize the eurozone? What are some of the basic the scenarios one can imagine for the euro until the end of this decade? What combination of circumstances could lead to an exit if a euro area member state and how conceivable is an exit?

These questions are almost of perennial relevance in relation to the eurozone where public debates have been full of assumptions about the eurozone suffering from design flaws, triggering a transfer union, falling apart or, in positive turns, actually resulting in major economic and political gains. Moreover, while the current conditions in the eurozone do look worrying with high inflation, high debts and disappointing growth figures, 2023 is also the year that the negotiations on the reform of the Stability and Growth Pact have to be finalized. Are the directions in which these negotiations are unfolding moving in the direction of what we would identify as the essential governance package for the eurozone or will economic governance remain a processing of incremental change with little direction?

Now, more than 30 years since the decision in Maastricht to create the economic and monetary union, we were asked to analysis these profound questions head on, on request of the ViceChair of the Committee on Economic and Monetary Affairs, Michiel Hoogeveen, and Chair of the Committee on Budgets, Johan van Overtveldt. Both members of the European Parliament belong to the ECR Group.


A stronger global role for the euro has been on the agenda since the first concepts of EMU. This position paper first covers the state of the discussion and subsequently points to the potential institutional implications of the geopolitical euro. The latter has received little attention in the literature.

There is fairly broad consensus among experts regarding the following points:

  • In theory, an international role for the euro has some economic costs and benefits as well as some geopolitical advantages.
  • The scope left to increase the global role for the euro is limited given the decreasing economic weight of the euro area (and its lack of hard power).
  • The EU’s geopolitical power is to some extent a zero sum game (our win means somebody else’s loss). The main global geopolitical competition will be between the US and China. The question needs to be asked whether the EU should aspire to gain a greater role for the euro at the expense of the US or concentrate on close cooperation with the US.
  • It is not clear what measures could deliver a substantially greater global role for the euro.  A greater supply of eurobonds is often mentioned but a greater supply of AAA rated bonds in euro could be more quickly achieved through large Member States putting their fiscal house in order

The paradox of a geopolitical euro follows from scenarios for the euro:

  • The Business As Usual (BAU) scenario in which member states regularly fight over economic governance, without arriving at a shared model for the euro, will not deliver the trust in the permanency in eurobonds that financial markets want.
  • The Fiscal Union scenario is unlikely to happen. This scenario would have enormous institutional consequences (and impose stringent requirements on member states).
  • The Minimum Model scenario assumes that member states understand that stability starts at home, accept the no-bail out, and agree that occasional crises may demand a flexible loan-based support mechanism to prevent a liquidity crisis from developing into a systemic crisis. This model is most feasible for a stable international currency but will result in insufficient eurobonds to support the ambition of the euro as a major international player.

The paradox of the euro as global currency is that the Minimum Model offers the best prospects for a stable euro even though it cannot offer sufficient economic cloud based on deliberately increasing the issuance of eurobonds.

In any case, the euro under the Minimum Model will be in greater demand than the current euro under Business As Usual. What the eurozone needs is nominal convergence (not so much real convergence).


The idea of an Economic and Monetary Union  
The idea of an Economic and Monetary Union (EMU), was sealed with the Maastricht Treaty. Later, in 1999, an agreement was concluded that launched the single currency and was the euro introduced from 2001. The idea was political. Shortly after the fall of the Berlin Wall in 1989, Helmut Kohl was out on the reunification of Germany. Because France could never touch the economic strength of Germany, Mitterrand wished to form a monetary union with a common currency. The German mark would thus be dethroned. As price for German unification, Kohl promised that his country by means of a monetary union would commit themselves firmly in European cooperation. In 1991, through the Maastricht Treaty, it was decided.

In 1997, Helmut Kohl has said no EMU without an European Political Union. But that EPU did not occur. It was expected that EMU would enforce the EPU automatically. As known, it has not yet come so far. Ultimately, this open end was closed with the wrong outcome; the credit crunch, which showed the hard reality.

Already before, during and soon after the introduction of the euro, there was discussion on adverse effects and design errors, but recommendations of these studies were not (sufficiently) arrested. Since end 2007, when the debt issue was outlined, many experts let their knowledge shine on the origin and further processes.

The social market economy faded away the last 10 years in favor of a free market economy; systems for pensions, minimum income, to fight corruption are needed. A true economic union is the key. Social inequalities need to be addressed and bureaucratic obstacles overcome. There should be concern for perspective for the young generation, Europe should be made more social and acceptable, there must be jobs and a debt brake in the constitutions.

In July 2022, things turned out differently: little or no enthusiasm to impose limits on oneself turned into the Transmission Protection Instrument (TPI) to support the effective transmission of monetary policy. The TPI can be activated to counter unwarranted, disorderly market dynamics that pose a serious threat to the transmission of monetary policy across the euro area.

ECB Target2 balances

Association for Monetary Union of Europe

Robert & Edward Skidelsky, How Much is Enough? The Love of Money and the Case for the Good Life
Euro T Bills 18-10-2010 FRANCO-GERMAN DECLARATION, Statement for the France-Germany-Russia Summit Deauville. France and Germany agree that the economic governance needs to be reinforced. Budgetary surveillance and economic policy coordination procedures should be strengthened and accelerated.

financial industry

rating agencies



Are we ready for the
digital euro?
The ECB is taking initiatives regarding a digital euro, but there are quite a few questions on this:

29 September 2022, CEPS organized a webinar about he introduction of digital (crypto)assets, as well as the underlying distributed ledger technology, has encouraged central banks throughout the world to contemplate digitising the monetary system and adopting central bank digital currencies (CBDCs). A digital euro issued by the European Central Bank (ECB) and made available to citizens and firms to make payments would be a very attractive instrument. However, concerns around competence, privacy, operational risk, cybersecurity, and financial stability risks cannot be ignored.

Would there be a large demand for a digital euro? How would the digital euro project impact the current financial system? Could CBDCs be the ‘holy grail’ of cross-border payments? How can the digital euro help address the risk of disintermediating banks? What is the role of the digital euro on strengthening the international role of the euro and how could it contribute to Europe’s ongoing quest for open strategic autonomy? What are the operational and processing challenges of a digital euro (e.g. the complexity of integration, mitigation from KYC to EID, and the use of different SEPA models across Member States)?

As from 2009, triggered by the crisis, the idea was taken to enable the possibility to exchange values and to set off outside normal institutes. This led to the discovery of the bitcoin and blockchain, the technology behind all cryptocurrencies and the sharing of a digital accounting system in which every transaction made with a coin can be followed. Now, there are more than 1300 different coins representing different functions. Cryptocurrencies are nothing more than a digital piece of code, consisting of numbers and letters that you receive when you buy a coin. When the bitcoin was invented in 2009 by Satoshi Nakamoto (pseudonym for an unknown person or group) it was mainly the payment system behind the currency that made interference by banks and governments superfluous: the blockchain.



Meet The Founder Of 'Etherium' - Vitalik Buterin.

'Ethereum' facilitates creation of new cryptocurrencies.

Cryptocurrencies are coins, you can purchase them via pin devices, buy pizzas, store them in a 'safe' or trade them at a market. In short: they behave like money, have a rate like money, and feel like rich possession in your virtual wallet. But it is not money. If only because you can 'dig up' a digital currency yourself in your computer. The latter shows immediately in which these crypto coins deviate: with every other type of money you create yourself, you get into an argument with authorities. They call this forgery. In this case, the system runs on the thesis that no authority has to supervise. The world community generates the crypto coins and control is ingrained in the coding. This so-called blockchain technology is an advanced administration system: it provides insight into where a currency has been and with which payments the currency is involved. Cryptocurrencies can have an impact on the real economy due to enormous price fluctuations, serious money with a price that is not based on underlying value.


great recession 2008  
Governments around the world continue to focus on how to handle the short term pressures associated with the present global economic downturn amid concerns about a double-dip recession. But it is vital to look to the longer term to ensure that economies, enterprises and industry are in a strong position to wheather multiple forces set to bear down on GDP growth. To achieve these goals and to provide a strong economy:
  • the Economic and Monetary Union (EMU) emerged, what union was sealed with the Maastricht Treaty and later, in 1999, acknowledgement was launched by an agreement to introduce the single currency, the euro from 2001;
  • Europe recognizes '2020-strategies' and common instruments, systems and mechanisms to strengthen economic governance;
  • an investment plan for Europe is developed to mobilise finance for investment, to make finance reach the real economy and to improve investment environment. The Plan aims to mobilise public and private investments of at least € 315 billion over the next three years (2015-2017) to boost projects through European Investment Bank (EIB), . The three angles of the Investment Plan for Europe are:

    Mobilising Investment Finance.
    The aim is to provide potential investors (public and private), as well as those seeking to benefit from funding in the future, with practical information on how the new European Fund for Strategic Investments (
    EFSI) will work and how to get involved.With strong political support from Member States and the European Parliament, the new European Fund for Strategic Investments could be established in June 2015, with financing available for projects in autumn 2015. Funding could be available even earlier for SMEs as the existing European Investment Fund gets reinforced.

    The new Project Pipeline.
    A pipeline of trustworthy, viable projects will be created under the Investment Plan - screened by independent experts - which are attractive to investors. The roadshow will provide information on how interested parties, including Member States, regions or project promoters can submit projects for screening, as well as the service which will be provided by a new technical assistance hub, to ensure that projects are well structured and comply with regulatory requirements;

    The Regulatory reforms.
    The roadshow will gather political support for regulatory reforms, at EU and national level which are critical to removing barriers to investment, opening new investment opportunities (in sectors such as digital, energy and capital markets) and changing permanently the investment environment in Europe.

There is a tough road ahead. A broader view of the contours of the future global economy is required. Changes are shaping our future. Policymakers must seize this chance. The IMF will support them in building a fairer and more prosperous future.


About consequences of phasing out the ECB buying program (quantitative easing) and raising the interest rate
"Higher interest rates do not need to be the harbingers of wider financial market instability. Policy normalisation should not create financing difficulties for government or major financial institutions. There is also little reason to fear that policy normalisation should lead to an abrupt return of risk aversion and risk premia. On the contrary, a continuation of the ‘low for long’ scenario might, over time, lead to a build-up of vulnerabilities.

The PSPP seems to have had two implications in terms of financial stability of opposite sign. The very large commercial banks’ deposits at the NCBs, which constitute the counterpart to the government bond holdings of the Eurosystem, have increased the direct negative impact of increases in policy rates on government finances, but also a positive impact of higher rates on banks’ balance sheets.

Moreover, if the PSPP holdings are kept at present levels, a generalised increase in rates (policy and market) will have a stronger, and more immediate negative impact on public finances. But this latter effect operates at the aggregate euro area level. For each individual euro area member country, the PSPP holdings of the NCB are stabilising, as they would mitigate about one-quarter of the impact of higher national risk premia on the cost of servicing public debt.

The opposite impact of the PSPP on the stability of public finances and the banking system in the face of interest rate increases is a simple consequence of the fact that the PSPP has reduced the effective duration of public liabilities. The mirror image of this is a reduction in the duration of the assets of the banking system, i.e. the private sector. The public sector would gain, if interest rates did not increase. But this would come at the expense of the income of the banking system, whose capital might then remain weaker for longer. The main policy implication is that lengthening the maturity of public debt would make public finances more robust" (Financial stability implications of increasing interest rates, Daniel Gros, Policy Insights, No 2018/10, September 2018).

  => exit should have no adverse impact
on inflation, could start now since
=> recovery is ‘self-sustaining
In a debate 'Priorities for Europe’s monetary union' Vítor Constâncio challenged the euro-pessimist views of Ashoka Mody based on the view that only a full-fledged federalist political union can ensure a monetary union. Different visions were also discussed on the effectiveness of nominal exchange rates for stabiliation and growth. He pointed to the growing evidence on the decline of nominal exchange rate moves pass-through to prices and the consequences of their relevancy to explain trade performance.

He also told it is well known that there are no permanent or long-term effects of the exchange rate on output.

On this issue of the exchange rate role in the european crisis see the evidence I show in my Mundell lecture at SAIS, “ Optimal currency areas theory and the euro” rebutting the competitiveness narrative of the crisis.


  Warnings against implementation of the euro
In the run-up to the currency union the chances and risks of this far-reaching monetary integration were hotly debated. Especially from the German point of view many economists felt that giving up their own trust-worthy and hard currency was too high a price for the promised intensified economic and political integration that the new single currency should deliver.

Their concerns were expressed in two manifestos that, directed to the public, forced politicians to look closer into the economic effects of the planned monetary union:

'At particular times a great deal of stupid people have a great deal of stupid money ..... At intervals .......... the money of these people - the blind capital, as we call it, of the country - is particularly large and craving; it seeks for someone to devour it', and there is a "plethoria"; it finds someone, and there is "speculation"; it is devoured, and there is "panic" (Walter Bagehot).
The first manifesto, "The Monetary Resolutions of Maastricht: A Danger For Europe", was signed in 1992 by 62 German professors of economics. The second, "The Euro starts too early", followed in 1998 with over 160 signatories. (German Council of Economic Experts proposed in the Annual Report 2011/12 a European redemption pact, see below). There is also a letter 4 August 1997 from a citizen to a former Dutch Minister of Finance that there was still much work to do by South- and Eastern European countries because they were not capable yet to function as 'good father of the family'. But 'the EMU had to become a success: Maastricht Treaty, Dublin SGP, and assignment of responsibility of EU monetary policy to the ECB, which institution secures against too much political influence on EU's monetary policy, secures the success'.

The euro is the second largest reserve currency as well as the second most traded currency in the world after the United States dollar. As of June 2010, with €862,3 billion in circulation, the euro has the highest combined value of banknotes and coins in circulation in the world, having surpassed the U.S. dollar. Based on IMF estimates of 2008 GDP and purchasing power parity among the various currencies, the eurozone is the second largest economy in the world.

Money matters. Prosperity of societies depends on it. The euro is the legal currency for the EMU-countries. Valued well, people, governments and financial markets will trust the currency and through that do prosperity good. Since end 2007, when the debt-issue was outlined, many experts let their knowledge shine on the origin, the development, solutions and future. Articles from April 2008 from these experts are included on the page.

To what extent do the problems illustrated by the Greek debt crisis threaten the future of the Eurozone? Iain Begg writes that while the prospects for Greece continue to be deeply uncertain, the wider reforms that have been pursued across the Eurozone since the crisis still give reason for optimism about the future of the single currency.


What caused the eurozone crisis? (CEPS commentary)

The fact that the doom loop has turned around for a while should not lead to complacency. The feedback mechanisms between weak sovereigns, banks and the economy still exist. While the European flotilla may have run aground, it need not sink. But rescuing the Eurozone will require coordination, teamwork, and discipline. While important progress has been made with the banking union and new institutions like the ESM, it is still true that more needs to be done. We find ourselves at a quiet time; the EZ crisis is in remission. But when interest rates start to rise, or if confidence evaporates again due to global shock, the systemic cracks could reappear at an alarming rate.

The panel (Bloomberg, French Council of economic analysis, Morgan Stanley, Minister of Finance Belgium and Bruegel) debated whether this is desirable and if it is politically feasible.

At the Bruegel Annual Meetings 2017 discussed was possible more federalization and coordination, a stronger role for Germany, further completion of the Banking Union (deposit guarantee scheme), a budget for the Eurozone, possible adjustments in the Treaty of Lisbon and democratization ofchanges and the decision making by the Eurogroup.

Eurozone governance has been in the process of reform since the beginning of the euro-area crisis. Yet the debate continues and has received new impetus with the election of President Emmanuel Macron, who has been calling for a euro-area "finance minister".

The Eurozone’s Hidden Strengths
(Daniel Gros, Director of CEPS, June 2017)

For years, the eurozone has been perceived as a disaster area, with discussions of the monetary union’s future often centred on a possible breakup. When the British voted to leave the European Union last year, they were driven partly by the perception of the eurozone as a dysfunctional and possibly unsalvageable project. Yet, lately, the eurozone has become the darling of financial markets – and for good reason. The discovery of the eurozone’s latent strength was long overdue. Indeed, the eurozone has been recovering from the crisis of 2011-12 for several years. On a per capita basis, its economic growth now outpaces that of the United States. The unemployment rate is also declining – more slowly than in the US, to be sure, but that partly reflects a divergence in labour-force participation trends.

Whereas labour-force participation in the eurozone is on the rise, it has been declining in the US since around 2000, and especially after the recession of 2009. The departure of Americans from the job market reflects what economists call the “discouraged worker” phenomenon. And, indeed, the trend has accelerated since the latest recession. In principle, declining labour-force participation should be a problem in the eurozone too, given the prolonged period of very high unemployment that many European workers have faced. But in the last five years, 2.5 million people in the eurozone have actually joined the labour force, as 5 million jobs were created, reducing the decline in unemployment by half.

Moreover, the eurozone recovery has been sustained, somewhat unexpectedly, even in the absence of continuous fiscal stimulus. The heated discussions about austerity of the last few years were misplaced, with both critics and official cheerleaders overestimating the amount of austerity applied over the last three years. The average cyclically adjusted fiscal deficit has been roughly constant since 2014, hovering at around 1% of GDP.
Of course, large differences in the fiscal position of individual member states remain. But this is to be expected in such a diverse monetary union. The truth is that even France, often considered a weak performer, has deficit and debt levels comparable to those of the US. A comparison with the US, as well as with Japan, also undercuts the common perception that the eurozone’s fiscal rules, including the (in)famous Stability and Growth Pact and the 2012 “fiscal compact”, have been irrelevant.


True, no country has been officially reprimanded for excessive deficits or debts. But the clamour over rule breaches at the margin have overshadowed the broad underlying trend towards sound public finances that the fiscal rules have fostered. All of this suggests that the ‘soft austerity’ pursued in many eurozone countries may have been the right choice after all.

To be sure, one should not overestimate the eurozone’s long-term economic strength. While the average growth rate might remain above 2% for the next few years, as the remaining unemployed are absorbed and the long-term trend of older workers re-joining the labour market continues, the pool of unused labour will eventually be exhausted. Once the eurozone has reached the so-called “Lewis turning point” – when surplus labour is depleted and wages start to rise – growth rates will fall to a level that better reflects demographic dynamics. And those dynamics aren’t particularly desirable: the eurozone’s working-age population is set to decline by about half a percentage point per year starting with the next decade.

Yet, even then, the eurozone’s per capita growth rate is unlikely to be much lower than that of the US, because the difference in their productivity growth rates is now minor. In this sense, the eurozone’s future may look more like Japan’s present, characterised by headline annual growth of a little over 1% and stubbornly low inflation, but a growth in per capita income similar to that of the US or Europe.

Fortunately for the eurozone, it will enter this period of high employment and slow growth on sound footing – thanks, in part, to that controversial austerity. In contrast, both the US and Japan are facing full employment with fiscal deficits higher than 3% of GDP – about 2-3 percentage points higher than those of the eurozone. The US and Japan also have heavier debt burdens: the debt-to-GDP ratio stands at 107% in the US and more than 200% in Japan, compared to 90% in the eurozone. There is evidence that in the wake of a financial crisis, when monetary policy becomes ineffective – for example, because nominal interest rates are at the zero bound – deficit spending can have an unusually strong stabilising impact. But there remains a key unresolved issue: once financial markets have normalised, will maintaining a deficit for a long time provide continuous stimulus?

The fact that the eurozone’s recovery is now catching up with that of the US, despite its lack of any continuing stimulus, suggests that the answer is no. Indeed, the experience of the eurozone suggests that while concerted fiscal stimulus can make a difference during an acute recession, withdrawing that stimulus when it is no longer vital is preferable to maintaining it indefinitely. With austerity – that is, reducing the deficit, once the recession has ended – it might take longer for the recovery to become consolidated. But once it is consolidated, economic performance is even more stable, because the government’s accounts are in a sustainable position.

A few years ago, several prominent economists[1] and even experts from international institutions argued that austerity could be self-defeating. The argument was that cutting the deficit would reduce demand and thus GDP so much that the debt-to-GDP ratio could increase even if the deficit increased. In an earlier CEPS Commentary published in 2011, the present author argued that “austerity was unlikely to be self-defeating” in the long-run because in the long run output and employment will be independent of short-run changes in fiscal policy. A reduction in the deficit might depress GDP and thus the debt/GDP ratio initially, but most models suggest that these negative effects should fade out and reverse within a few years. Thus, the conclusion from several years ago seems to have been vindicated: “Implementing credible austerity plans constitutes the lesser evil, even if this aggravates the cyclical downturn in the short run.”  

[1] See Paul Krugman, “Self-defeating Austerity”, New York Times, 7 July 2010 (, Dawn Holland and Jonathan Portes, “Self-Defeating Austerity”, VoxEU, 1 November 2012 ( and Jonathan Portes, “Is austerity self-defeating? Of course it is”, VoxEU, ND (


Bridging visions for an economic and social union: The future of the Euro

28 October 2016, The Spinelli Group
organized the forum:

"Europe & nation states: friends or foes?

László Andor (ULB), Ramona Coman (ULB),
Amandine Crespy (UBL), Paul Jorion (UCL) and
Luca Visentini (ETUC) discussed the issues
that hit the euro.

"The single currency cannot
be an aim in itself, but an instrument to achieve wider objectives".


  Rumors of the euro's likely demise are greatly exaggerated
(15 August, 2015, Ian Begg, The London School of Economics and Political Science)

Since 2009, when the extent of the problems in Greece’s public finances first became known, Europe’s leaders have struggled to contain the ensuing crisis. The latest episode culminated in an agreement last month on yet another bailout for Greece, on condition that Greece implement yet more public expenditure cuts and accelerate its programme of economic reforms designed to improve the growth potential of the economy. These reforms will be challenging and many critics are already predicting failure leading to a further round of difficult negotiations. Against this gloomy backdrop, it is easy to be pessimistic about the chances of Greece staying in the euro and even about the long-term survival of the Eurozone. However, what is too easily overlooked is the strength of the political commitment to make a success of the euro, with both creditor and debtor countries agreed that an unravelling of the currency will not solve their problems. In addition, there have been significant changes in the governance mechanisms of the euro which give grounds for optimism. Even the UK, so often reluctant to participate in the deepening of European integration, has supported these initiatives, despite being outside most of them.

Several explanations for the Eurozone’s difficulties have been put forward, some focusing on fundamental design flaws, some on policy mistakes and others on political problems. Procrastination in confronting the crisis has also been evident, and even in the latest deal on Greece, it was clear that many euro members were torn between their own national interest and the common interest. The Greek leadership had not only miscalculated the strength of its bargaining position, but also upset many of its partners by the tone it adopted, especially towards Germany. But objections to the Greek demands were even greater from countries as different as (rich) Finland and (poor) Slovakia as from Germany. Quite simply, the others did not trust the Greeks. An underlying explanation is that the architecture of the Eurozone was always an uneasy compromise between competing national views on what was desirable. Unlike other monetary unions, the Eurozone was deliberately set up without any formal system of fiscal transfers between members of the sort that could have helped to deal with divergences in economic performance. By contrast, in the United States, if a state experiences a sudden downturn in its economy, for example because one of its key industries faces difficulties, additional spending from federal programmes is triggered automatically. Such transfers mitigate the effects of the downturn. Europe also has relatively limited flows of labour between countries, and private financial flows are markedly lower than elsewhere, meaning that other potential adjustment mechanisms are inadequate.

At an institutional level, elements that were lacking when the euro was launched were a lender of last resort function from the European Central Bank (ECB), the absence of tools for crisis management and no source of loans for countries (initially Greece, but also Ireland, Portugal and Cyprus) which faced a liquidity crisis. In fact, one of the features of the euro’s design is what is known as the ‘no bail-out clause’, a treaty article that prohibits both the ECB and other governments from directly buying the sovereign bonds emitted by euro member governments. These deficiencies were, to a considerable extent, disguised by the rather benign global economic conditions of the period from 1998-2008, greatly helped by the growth of China – a period sometimes referred to as the ‘great moderation’.

The comparative success of the euro during its first decade, both in maintaining price stability and in facilitating steady growth, proved to be built on shaky foundations. In much of southern Europe steady economic growth seemed to have been achieved and, in one of the many paradoxes of the euro’s history, Germany was seen by many as the ‘sick man of Europe’ until as late as the mid-2000s. With hindsight, though, it is now obvious that southern Europe was becoming increasingly uncompetitive. Unit labour costs, a measure of the cost of producing goods and services, had been rising continuously in the Mediterranean countries between the launch of the euro and 2008, but had been stable in Germany.

The annual change was small, with increases of two to three percentage points, but over a decade, the cumulative effect was substantial. By 2008, the increase relative to Germany was as much as 25 per cent, so that it should not be a surprise that the balance of payments positions of countries like Greece, Portugal and Spain had become alarming, with all three reaching deficits of 10 per cent or more of GDP by 2008. Financial markets, however, did not seem worried, with bond spreads converging during the first half of the 2000s and more money invested in these countries. In addition, the monitoring of individual Eurozone economies by the European authorities was lax. Spain and Ireland were also hit by speculative bubbles in the property market which resulted in bank failures and meant that the national governments had to bail out their banks. In the cases of Ireland and Cyprus, the cost was too high for them to bear and the state then had to be bailed out by the rest of the Eurozone. Spain narrowly avoided a similar fate, but still needed some support to rescue its banking system. These difficulties highlighted the absence of a Eurozone banking union and the inconsistency between a common currency and separate national banking systems.

How, then, can optimism about the future of the euro be justified? The answer is that Europe’s leaders have been introducing far-reaching reforms intended to improve the resilience and effective management of the single currency. Indeed, since 2009, another paradox of the euro is that while the rest of the world sees only dithering, denial and double-dealing, the pace of governance reform in the Eurozone has, at times, been frenetic. New measures have been introduced to strengthen national fiscal discipline and to improve the coordination of fiscal policy, and a procedure for identifying and, if required, correcting other sorts of macroeconomic imbalance – backed by the threat of financial sanctions for backsliders – has become law. A new loan fund to support countries in difficulty has also been established.

Significant steps towards creating a banking union have been taken with the agreement of a new structure for prudential supervision of banks (the single supervisory mechanism, with the European Central Bank at the pinnacle of a network of national supervisors), and a common approach to resolving failing banks (the single resolution mechanism). By taking on these and other new responsibilities, the European Central Bank is slowly becoming a fully-fledged central bank, rather than a mere custodian of price stability, and the first elements of a capital markets union are being introduced. Many of these new measures remain to be properly tested and there are bound to be concerns about their effectiveness, not least because of past experience of non-compliance, including by Germany. Nevertheless, there are good reasons for believing that the Eurozone’s leaders have made such substantial changes that – to misquote the American author, Mark Twain – rumours of the euro’s likely demise are greatly exaggerated.

Till 2008, economy boomed. From 2008 an enormous mountain of debt loomed. Ample liquidity, low interest rates, behaviour, credit-crisis, financial- economic crisis, stimulus resulting in sovereign debt crisis and through that and through mislead of budget-figures by a former Greek government leading to a crisis of confidence underlied this enormous debt (eur 8.262.336.000.000). The misery touches BoP's and thus everybody. Politics came up with rescue plans and real pressure: HoSG assembled in order to make steps to solve the crisis in the Eurozone. Achievements were laid down in 'euro summit statements', Pacts, regulations, programmes to sustain governance.

The euro is the official currency of the eurozone: 19 of the 28 member states of the European Union, which consists of Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Latvia, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia, and Spain. The currency is also used in a further 5 European countries (Montenegro, Andorra, Monaco, San Marino and the Vatican) and the disputed territory of Kosovo. It is consequently used daily by some 332 million Europeans. Additionally, over 175 million people worldwide use currencies which are pegged to the euro, including more than 150 million people in Africa.

As said, since 2008 there is an enormous mountain of debt. Market fundamentalism, a wrong political economic system of capitalism and symptoms inherent to economics played a very important role. Inability to let take place the right exchange of information between macro and micro economy, the use of money as transfer without sufficient underlying matter, too complicated and mixed up products and services, stagnation of insight and overview and undeveloped law and regulation conducted the present billons of deficit, that is now pumped around.

In "The Great Slump of 1930", Maynard Keynes wrote the world as living in "the shadow of one of the greatest economic catastrophes of modern history. We have involved ourselves in a colossal muddle, having blundered in the control of a delicate machine, the working of which we do not understand".

From 1-1-2014 including Latvia

 Eurozone,  EU-member states with obligation to implement te euro,  EU-member states with an opt-out about implemention of the euro,  Areas outside the EU that use the euro without an EU agreement, areas outside the EU that use the euro through an agreement with the EU (San Marino, Monaco, Vatican city)

The euro was launched 15 years ago through the Maastricht Treaty, and was expected to make Europe stronger economically and more integrated. Although the Delors report in 1989 correctly identified many of the structures needed to make EMU work, the Maastricht design underplayed the importance of labour and product flexibility, and of divergences in competitiveness. For most of its first decade the euro area grew quickly, coinciding with a period of very rapid world growth. However, the global economic and financial crisis that started in 2007 hit Europe hard, exposing serious flaws in its original design. Although the crisis began in the United States, Europe ended up being the worst-affected region. At one point, markets and commentators began to ask serious questions about whether the single currency could survive. Important measures were taken to save the euro, and since 2012 markets have become calmer, as European leaders and policy-makers signalled they were prepared to take tough decisions. In particular, the president of the European Central Bank (ECB), Mario Draghi, promised to do ‘whatever it takes’ to protect the euro.

The Chatham House, Elcano and AREL Report by Stephen Pickford, Federico Steinberg and Miguel Otero-Iglesias from March 2014, 'How to Fix the Euro. Strengthening Economic Governance in Europe', examines why the economic and monetary union (EMU) was so badly affected by the crisis, and assesses whether further changes need to be made to the structure of economic governance that underpins it.

Paul N. Goldschmidt, Director, European Commission (ret.); former Member of the Steering Committee of the Thomas More Institute, distributed an article entitled 'The ECB and austerity': As the forthcoming European elections approach, it is urgent to clarify the debate surrounding the ECB so as to avoid that simplistic and superficial slogans propagated by overzealous politicians misinform the elector. Indeed, many voices are suggesting that excessive (budgetary) austerity is counterproductive and capable of stalling the nascent economic recovery. These criticisms refer to declarations by personalities such as Christine Lagarde (IMF) or number of recognised economists – whose views are often misinterpreted or taken out of context – when they are not simply the ructions of politicians vaunting inapplicable measures such as “eurexit”, salary increases, protectionism, postponing budgetary rigour, etc. The debate would be, in part, more seriously grounded if, as is the case in Italy, the projected stimulus is accompanied by ambitious structural measures subject to a rigorous timetable (imposed under the threat of the government’s resignation) or recognises the impressive and painful reforms already implemented (Greece, Ireland, Portugal Spain); on the other hand it is not acceptable in the French case where the request for further European “indulgence” aims at obfuscating the dissensions within the governing majority allowing, once again, to postpone unpopular decisions.

There seems to be a broad consensus on the diagnosis which, in the absence of an agreement to reduce national deficits, aims, nevertheless, at reducing excessive indebtedness (lip service to the burden on future generations). This stance is structurally contradictory unless an EMU wide agreement to devalue the debt through inflation was achievable, which is clearly utopian. So the protagonists fall back on the easy way out by conferring on “Europe” the responsibility for stimulating economic growth while, simultaneously, denying it the necessary resources. Indeed, it is only at European level that a policy aiming at stimulating consumption in “healthy” Member States (Germany) can be envisaged so as to attenuate the impact of austerity measures on countries that have not yet even started to implement seriously the required structural reforms (France).

The preferred scapegoat of supporters of a European stimulated growth policy is the ECB whose independence is strongly contested in this particular regard. It is invited to finance the recovery through measures that would, if necessary, totally disregard its by-laws and/or the EU Treaties. Such a choice comes easily as it appears to exonerate national governments despite the fact that, together with their predecessors, they alone are responsible for drafting and ratifying the Treaties and Regulations that “Brussels” and “Frankfurt” are charged with implementing.

Any objective analysis would conclude that the ECB has already interpreted the rules that govern its operations with a significant degree of flexibility (enough to anger the Bundesbank) and, in so doing, can also claim to have, so far, done “everything it takes to save the €”. If the EMU’s monetary policy, implemented by the ECB, constitutes an important aspect of economic policy, it is, nevertheless, obvious that it cannot, in and of itself, be the sole spur to the recovery.

Thus, the ECB finds itself alone in imagining new tools to carry out monetary policy within the Eurozone. These concern principally “quantitative easing” which, as clearly explained by President Draghi, must take into account the structural differences between credit markets in the Anglo-Saxon world (based on capital markets financing)  and in the Eurozone (based on bank financing), a fact that largely escapes the understanding of politicians. Furthermore, while in the United States and England, their respective Central Banks dialogue with governments disposing of significant resources and budgets, the ECB has no legitimate interlocutor with which it can coordinate its interventions. Indeed this “Europe” that is supposed to finance the recovery is prohibited by the Treaties to indulge in monetary financing; additionally, by a unanimous decision of the Member States, it is endowed with an insignificant budget and derisory “own resources” limiting any significant recourse to issuance of Eurobonds, project bonds, etc. which, otherwise, might be eligible for purchases by the ECB, on the model of the American Federal Reserve Bank or the Bank of England. 

It should be perfectly obvious to any good faith observer that, within the framework of the current Treaties, any direct financing by the ECB of Member State’s deficits is impossible to implement without incurring important moral hazard risks; to avoid them, it would be necessary to frame such a policy very strictly which would be tantamount to reinstituting the provisions that are already in force in the Stability and Growth Pact, the Budgetary Treaty, the Six and Two Packs, which together – oh surprise – are precisely the safeguards Member States imposed for any recourse to the European Stability Mechanism!

It is clearly highly desirable that, one day, the ECB will be endowed with similar powers to those at the disposal of their American, British of Japanese counterparts in the financing of the economy as well as intervening efficiently in foreign exchange markets. This implies further integration towards a “federal” Eurozone and therefore a thorough revision of the Treaty, which is currently not on the cards.

Calling for further ECB intervention and purporting that it constitutes the panacea countering the need for austerity and structural reforms is a gross lie. It is being propagated not only by nationalist/populist Europhobic parties but equally by number of alleged Europhile members of government majorities who are always keen to ask of Europe what it cannot deliver because they refuse systematically to provide it with the necessary resources.

under construction

(*) Wolfgang Münchau from Eurointelligence ASBL, Timothy Garton Ash, Lorenzo Bini Smaghi member of the Executive Board of the European Central Bank, Christopher Alessi from Council on Foreign Relations, Jacques de Laroisère, Jean Claude Trichet, Daniel Gros CEPS, Thomas Mayer Deutsche Bank London, Paul de Grauwe university of Leuven and CEPS, George Soros, André Sapir University Libre de Bruxelles, Desmond Lachman American Enterprise Institute, L. Bini Smaghi ECB, Mohamed El-Erian PIMCO, Stanley Fischer governor Bank of Israel, Olli Rehn vice-President of the European Commission and member of the Commission responsible for Economic and Monetary Affairs and the Euro, Carmen Reinhart, Robert Shiller drafted all comprehensible papers on the development and future of the currency, the EMU, and the EU.


The World Bank announced with a report a rethink on the role of the state in the financial sector, so that governments can better balance the need for credit and emergency support for banks with measures to promote transparency and competition when crises erupt. This Global Financial Development Report: Rethinking the Role of the State in Finance, examines how financial systems around the world fared during the global financial crisis. Coinciding with the anniversary of the 2008 collapse of Lehman Brothers, the report draws on several new global surveys and compiles unique country-level data covering more than 200 economies since the 1960s.

Very recently (June 2012) a report was published on Completing the Euro. In the present context of tensions and crisis surrounding the functioning of the European Economic and Monetary Union, it is particularly enlightening to find in- depth analysis and a source of inspiration. The great interest of this Report is to call on “completion of the euro” on the basis of very acute and pragmatic analyses of the challenges at stake, but also with the objective of proposing both feasible.

While acknowledging that the economic dimension of the crisis in the eurozone is important, Lorenzo Bini Smaghi argues that it is the symptom of a broader political problem. On July 10th, the Italian economist characterised the problem as the unwillingness of democratically elected officials to take unpopular decisions likely to jeopardise their re-election. Emergency thus becomes the engine of political action and the justification for corrective measures vis-à-vis the voters. As a consequence, the cure, in the form of austerity - belated and administered under pressure from the markets - becomes even more painful and unpopular, giving rise to populist movements and endangering democracy itself.

In his role as discussant, Paul De Grauwe (CEPS Associate Senior Fellow) weighed in that long-term structural policies are unlikely to provide short-term relief and should be flanked by additional spending in the ‘North’. Bini Smaghi countered that structural reforms will signal to the markets that the long-term growth potential will boost investment in the crisis countries and reduce borrowing costs. Both experts agreed that austerity is the wrong prescription but that a mix of short- and long-term measures would do the trick. A former member of the Executive Board of the European Central Bank, Bini Smaghi is currently a visiting scholar at the Weatherhead Center for International Affairs at Harvard University and at the Instituto Affari Internazionali in Rome.

Lorenzo Bini Smaghi and Paul de Grauwe on Austerity, European democracies against the wall
13-06-2012 DOMINO-DAY
An exit of Greece, before the summer, is almost the only option. With the expected outcome of the elections, Greek people choose for the last straw; their own pride. Through this quality of the ego, the Greeks put the heels in the sand and want to renegotiate again on the debt position and will get Europe automatically her "Lehman moment". The exit of Greece is the first stone. Spain and Italy are already faltering and at some distance Portugal, France and Belgie are in a row. On or just before this "domino day" Europe will have to intervene drastically

The European Union is a voluntary, quasi-federation of sovereign and democratic states in which elections matter and the electorates in each country seek to determine their own destiny, regardless of the wishes and interests of their partner member states. Seen Greece's process concerning the referendum on the second rescue package, it is impossible to force sovereign countries to adhere to rules if their citizens no longer accept them.

12-01-2012 THE DECLINE and FALL of the EURO?
Great empires rarely succumb to outside attacks. But they often crumble under the weight of internal dissent. This vulnerability seems to apply to the eurozone as well. Key macroeconomic indicators do not suggest any problem for the eurozone as a whole. On the contrary, it has a balanced current account, which means that it has enough resources to solve its own public-finance problems. In this respect, the eurozone compares favourably with other large currency areas, such as the United States or, closer to home, the United Kingdom, which run external deficits and thus depend on continuing inflows of capital

The European Union and the euro area have done much over the past 18 months to improve economic governance and adopt new measures in response to the sovereign debt crisis. However, market tensions in the euro area have increased, and we need to step up our efforts to address the current challenges. Today we agreed to move towards a stronger economic union. This implies action in two directions:
- a new fiscal compact and strengthened economic policy coordination;
- the development of our stabilisation tools to face short term challenges.

In the light of the agreements made by the euro area Heads of State or Government (HOSGs) on 9 December, 2011, and subsequent discussions on a TREATY ON STABILITY, COORDINATION AND GOVERNANCE IN THE ECONOMIC AND MONETARY UNION, ELEC thought of a proposal for a two-year refinancing for all € bills/optional refinancing of bond maturities until 2015; the “Euro T-Bill Fund”.The proposal was introduced during an ECMI/CEPS meeting 6 March 2012, where was looked at trends in markets over the past year and how sovereign debt markets are functioning in convulse circumstances, the Greek debt restructuring, the ECB intervention and the broader options to solve the crisis.

Even if the best possible agreement is struck by the European Council meeting in Brussels December 7th-8th, the crisis will not suddenly be over. But this Commentary suggests a formula whereby it could at least be contained, thus giving countries such as Italy or Spain the time they need to show that they can get their deficits under control and turn their economies around.

Speech by Vítor Constâncio, Vice-President of the ECB, 26th International Conference on Interest Rates. Since the introduction of the euro, our common currency, times have never been as challenging as at present. Despite ongoing efforts by policy makers, the sovereign debt crisis is still ongoing, putting growth and welfare of our citizens at risk. In this context the Governing Council of the ECB met this morning and, as you know, decided to reduce the monetary policy rate by 25 basis points and take a series of measures to improve liquidity provision to the banking sector, thereby enhancing the operation of the credit channel.

The European Union is in crisis and its outcome is unclear. Perhaps the EU Summit on 8 and 9 December will offer clarity, although at previous stops Europe and its citizens stayed often in the dark. While the Eurocrats in Brussels catacombs keep trying to solve this ever growing problem, especially among European citizens anger is growing. How did they come to this impasse? Their argument is as follows: If European officials and politicians had not pushed for an economic and monetary union, Europe today should not be burdened with a crisis.

The recent crisis in Europe was gave course for Society and Enterprise Foundation (SMO) to devote a symposium on the future of Europa and the Euro. This crisis started for the greater part through mutual, uncontrolled intertwinning of the financial markets. By this, next to the banks, also countries and currencies are under pressure. Key-question of the symposium is if the announced measures will be sufficient to avert the crisis. Is the danger averted or is the crisis in Europe forerunner of a world-wide rearrangement of financial resources, power and prosperity? And what does it mean for business and for citizens?

04-11-2011 FSB REPORT TO G20
This report shows progress in implementing the G20 Recommendations on Financial Regulatory Reform Status. The tables have been developed in response to a request from the G20 Sherpas for a simple visual summary of the progress made in global policy development and implementation of financial reforms at the G20 level. The FSB Secretariat, in consultation with the FSB members, has developed these summary tables based on qualitative information from FSB members, including information collected through the FSB monitoring framework and tools.
The table contains the information for each area of G20 recommendations, namely responsible institutions, deadline, and status of progress made.

Further action is needed to restore confidence. That is why today we agree on a comprehensive set of additional measures reflecting our strong determination to do whatever is required to overcome the present difficulties and take the necessary steps for the completion of our economic and monetary union. We fully support the ECB in its action to maintain price stability in the euro area.

Through Project Syndicate George Soros (and several other experts) published several comments.

The first, second and third priorities of European economic policy should be to stop and reverse the downturn. If they fail to achieve that, the eurozone’s crisis will end in catastrophe because every single resolution programme will be in danger of failing.

What needs to be done? To avoid the worst scenario, the Eurozone needs a massive infusion of liquidity. Given that the existing cascade structure of the EFSF is part of the problem, the solution cannot be a massive increase in its size. Rather, the EFSF could simply be registered as a (special) bank in Luxembourg with access to re-financing by the ECB in a case of emergency. The EFSF, which we would prefer to call the European Monetary Fund (EMF) would then have access to ECB funding as do other banks, for which the central bank acts as a lender of last resort.

We reaffirm our commitment to the euro and to do whatever is needed to ensure the financial stability of the euro area as a whole and its Member States. We also reaffirm our determination to reinforce convergence, competitiveness and governance in the euro area. Since the beginning of the sovereign debt crisis, important measures have been taken to stabilize the euro area, reform the rules and develop new stabilization tools. The recovery in the euro area is well on track and the euro is based on sound economic fundamentals. But the challenges at hand have shown the need for more far reaching measures.
Today, we agreed on the following measures:

The EU’s current framework cannot prevent or manage fiscal problems effectively. This does not mean that it is too late to build one that can. In addition to better financial cooperation, eurozone countries need to deepen their political coordination as well.

The political economy of the Eurozone is based on three pillars: lies, loopholes and fudges.
Back in the 1990s, its advocates made a series of mostly inconstant promises. The Germans were promised that monetary union would not give rise to fiscal transfers and would create a currency at least as hard as the Deutschmark. The French understood the euro as a vehicle to cement Europe’s global reach. For the Italians and the Spanish, it offered an opportunity for monetary stability and permanently low interest rates. Especially in countries with highly deregulated banking systems, like Spain and Ireland, it brought sudden wealth by way of a housing bubble.

A monetary union can only function if there is a collective mechanism of mutual support and control. Such a collective mechanism exists in a political union. In the absence of a political union, the member countries of the Eurozone are condemned to fill in the necessary pieces of such a collective mechanism.
In order to design the appropriate governance institutions for the Eurozone it is important to make the right diagnosis of the nature of the debt crisis in the Eurozone. Failure to do so, can lead to designing a governance structure that is inappropriate for dealing with the problems of the Eurozone. In order for the Eurozone to survive, it will have to be embedded in a much stronger political union than is the case today.

More ‘E’ in EMU. The financial and economic crisis over the last three years has exposed the main supervisory and regulatory failures both at national and global levels. In Europe, it has also revealed how financial integration has increased the likelihood, scope and pace of contagion across the European financial sector.

Stability Bonds can provide substantial benefits, also for countries with currently high credit standing speeched Olli Rehn, Vice-President of the European Commission and member of the Commission responsible for Economic and Monetary Affairs and the Euro. Yet, there are serious challenges to make them work, economic, legal, and technical ones. And we need to be equally clear about these, as well
. A joint issuance of bonds, which would be limited in time and size to bring public debt in all Member States to below 60% of their GDP.

As revealed at this seminar with top experts in sovereign bond markets, the equation LTRO + ESM – PSI = LY (longer-term refinancing operations + European Stability Mechanism - private sector involvement = low yields) roughly captures market sentiment. In effect, the longer-term refinancing operations (LTRO) carried-out by the ECB and the future European Stability Mechanism (ESM) are easing the pressures in sovereign bond markets and are seen positively by market participants. Yet private sector involvement (PSI) in the rescue package for Greece is believed to have had the opposite effect, undermining market confidence despite reducing moral hazard. As a result of the interaction of these three factors, investors are expecting low yields (LY) in Europe, coupled with uncertainties about the future. To overcome this impasse, experts and investors present at this seminar favoured common issuance, introduced progressively over the medium-term, in combination with structural reforms, to make the equation work to the benefit of member states and their citizens.

Concluding remarks from this report:- only a pan-EMU federal budget or Eurobonds tackles a fundamental flaw in EMU's desigbn; the fragmentation of markets;
- if fragmentation of national bond markets is not eliminated, EMU will remain vulnerable and may in the end not survive;
- a vulnerable EMU results in vulnerable banks and unstable markets;
- eurobonds will only help if they deliver advantages for both strong and weak countries;
- however: eurobonds are a fundamental redesign of EMU and need time to implement;
- the ELEC temporary scheme of conditional euro T-Bills delivers most, if not all of these benefits.

14 December 2010 OMGEO and ICMA, and endorsed by ECMI, organised an event on FINANCIAL MARKET INFRASTRUCTURES with the aim to represent a forum for policy makers, industry and stakeholders. This industry forum was focussed on operational and legal risks, settlement cycles and financial stability.

The financial crisis required prompt, decisive and innovative actions by central banks and governments around the world. We at the European Central Bank (ECB) have pursued what I have previously labelled at this symposium a policy of “credible alertness”: [1] solid anchoring of inflation expectations combined with bold and resolute action when price stability in the medium term is threatened and financial developments hamper the transmission of monetary policy to the real economy.
Looking forward, the advanced economies now face another, related challenge: how to deal with the legacy of the excesses and imbalances accumulated over the previous decades by households, firms and financial institutions – notably the expansion of debt, the build-up of risk and the increase in leverage. The financial crisis was a symptom of these imbalances.

In one corner stand the “growth now” camp, arguing that expansion is a pre-requisite to service their debt sustainably. Without it tax receipts implode, investment is turned away, and meeting future debt payments is harder. This camp abhors Europe’s shift towards austerity, questions Tuesday’s tough UK budget, and urges countries like Germany to adopt expansionary policies. Some advocate additional fiscal stimulus even for high deficit countries, like the US.

Against them stand the “austerity now” camp. They point to worsening sovereign debt ratings, noting especially that (despite Europe’s rescue package) Greek and Spanish debt risk is back to worrisome levels

Europe has to become weatherproof and the European Commission has an explicit responsibility on the matter by insuring integrity of the single market and by coordinating economic policies. In the Greek case, there is failure with the prevention framework and a lack of a crisis management framework. Also absent was an attitude to respect the spirit of the SGP. Another fact is that 3/4 of the Greek debt is to be found outside Greece (mainly Germany). Before the euro EMS (European Monetary System) with its parity was the mechanism. Now, rate policy should be seen as a matter of common interest and is shifting from nominal exchange rates to real exchange rates.

The crisis that started in Greece culminated into a crisis of the Eurozone as a whole. How did we get into this mess? To answer this question it is useful to distinguish the three actors that have played a role in the development of the crisis: Greece, the financial markets (including the rating agencies) and the eurozone authorities. Let us analyse the role of these three actors in the drama.

Since July 2007, the world has faced, and continues to face, the most serious and disruptive financial crisis since 1929. Originating primarily in the United States, the crisis is now global, deep, even worsening. It has proven to be highly contagious and complex, rippling rapidly through different market segments and countries. Many parts of the financial system remain under severe strain. Some markets and institutions have stopped functioning. This, in turn, has negatively affected the real economy. Financial markets depend on trust. But much of this trust has evaporated.

The current financial crisis is no accident. It was not, as some top people in finance and politics now claim, impossible to predict. For lucid individuals the bell rang years ago. This crisis is a failure of poorly, or unregulated markets, and shows us, once more, that the financial market is not capable of self-regulation. It also reminds us of worrisome escalating income discrepancies in our societies, and raises serious
questions about our ability to engage developing nations in a credible dialogue about global challenges.

The crisis emerged with the bursting of the US housing bubble and has its origins in the dominance of the current paradigm of efficient markets, or so-called market fundamentalism or ideology. Soros argues against the unity of science and considers economics a social science that cannot rely on natural science assumptions.

'The unfolding crisis in Europe's financial markets is presenting the EU's new regulatory and supervisory set-up with its first big test, revealing worrying differences in responses to stress, flaws in the enforcement of rules and gaps in the supervisory framework. Although the evidence is limited so far, some clear-cut policy recommendations can be made, which need to be urgently addressed. Concerted action is needed involving monetary policy authorities, policy-makers and supervisors to agree on a set of policy priorities and to prepare a more integrated response to crises. The reputation of Europe's financial markets is at stake.

What started as difficulties in the US subprime mortgage market rapidly became a problem primarly affecting the European banking market, and in particular those banks that were heaviliy dependent on real estate lending, funding by short-terms loans. As a result of the fear that some banks may be suffering losses in their exposure in their real estate loan portfolio, interbank lending rates started to rise, and the market for short-term lending dried up althogether, cutting off smaller banks in particular from funds they needed'.

With up to twenty-seven members instead of the present twelve, the challenge for ensuring a smooth functioning of the enlarged Eurozone will be daunting. The reason is that in such a large group the probability of what economists call ‘asymmetric shocks’ will increase significantly. This means that some countries may experience a boom and inflationary pressures while others experience deflationary forces. If too many asymmetric shocks occur, the ECB will be paralyzed, not knowing whether to increase or to reduce the interest rates. As a result, member countries will often feel frustrated with the ECB policies that do not (and cannot) take into account the different economic conditions of the individual member countries

Fund of the Association for Monetary Union of Europe (AUME) (1986-2003): founded in Paris in 1987 by European industrialists, convinced that the single currency was essential to the success of the single market; it took up the theories advocated by the European Monetary System (EMS) of Valéry Giscard d'Estaing and Helmut Schmidt.
The head office of the AUME was located at 26, rue de la Pépinière, in the eighth arrondissement of Paris. An association under the 1901 law, the AUME had 400 members, companies and banks, i.e. a total of 9 million employees.
In order to ensure the success of the euro, AUME has taken part in official expert groups, organised numerous think tanks, participated in more than a thousand information seminars, drafted studies and reports, organised 250 conferences a year around the world and distributed information brochures and practical guides for traders. industrialists and tourism professionals.
With the introduction of the euro, the AUME considered its mission accomplished and voted to dissolve it on 30 October 2001. This came into effect on 30 April 2002.