This paper provides a perspective on the euro area (EA), focusing on macroeconomic and financial asymmetries among its member states and the need for major and fundamental reforms. After surveying the evolution of EU macroeconomic and monetary cooperation and developments since the creation of the euro, and particularly the euro area crisis, we argue that the euro area is in need of fundamental fiscal, financial and labor market reforms. In addition to reforms currently discussed, a common EA budget of moderate size would help smooth out the asymmetric impact of macroeconomic shocks through the operation of automatic fiscal stabilizers. It would also help countries in recession face smaller national fiscal and financial consequences of such recessions, and would also partly address labor market fragmentation as it could be targeted to euro area wide unemployment and health insurance. It would also help in the avoidance of future crises if the scope of the ECB to act as a lender of last resort in times of crisis was expanded and officially recognized.
This paper was presented to the Tufts/LSE Conference on Greece and the Euro: From Crisis to Recovery on April 12, 2019.