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A Liberal Roadmap for a Resilient and Prosperous EMU 3.0

The EU has successfully graduated from the eurocrisis of 2009-2012 and started the era of EMU 2.0, in spite of the fact that it might have reacted far better, with less acrimonious politics and less social upheaval. However, some unresolved problems have remained. This time around, the challenges of keeping a prosperous and resilient EMU together in the post-pandemic era are so great that EU policy- makers cannot continue “kicking the same can down the road” or muddling through. Policy- makers should carefully navigate the EMU’s existing ‘Unholy Trinities’ and avoid picking the italicized options in the following brackets: (lack of ambitious structural reforms – welfare state sustainability – fiscal discipline) ; (fiscal stability – financial stability – lack of a credible common supervision and resolution framework) ; (no monetary financing – no debtrestructuring – no bail-outs) ; (deregulated banking – deposit security – no socialisation of private debts) ; and (a clean ECB balance sheet – no fiscal transfers – temporary within-EMU current account imbalances). We laid out detailed reform proposals in the previous section and shall not recap them here once again. However, we shall reiterate that building EMU 3.0 has no alternative. If policy-makers stay behind the curve and rely on ‘business as usual’, then the COVID-19 shock will inevitably crush the EMU. If they try to overreach with overly ambitious reform proposals that correspond to EMU 4.0 or a federalist structure, without a clear political mandate bestowed upon them by the majority of EU citizens, the effect will be the same and the EMU shall perish. Therefore, do not let the perfect be the enemy of the good and let’s build together a prosperous, resilient, and liberal Europe.

EMU 1.0 ; EMU 2.0. ; EMU 3.0. ; euro, monetary policy, fiscal policy, European Semester ; optimal currency union ; embedded currency union ; fiscal union ; banking union ; capital markets union ; structural reforms

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