Since the eurozone crisis, the intellectual consensus has gradually solidified around the hope that once the financial system is repaired, the creation of a banking union, extended with a capital markets union, would allow for enough risk sharing as in an insurance system to stabilize the currency union. If properly designed, this might convincingly redress the worst flaws of the initial architecture, but it is not enough to ensure its success. [...]
Institutional and political issues, rather than the economic solutions, should be at the heart of the reform debate. The last few years have shown that the institutions governing the eurozone are not fit for purpose in preventing crises and even less so in managing them. Economic policy orchestrated by an ineffective combination of complex rules, erratic market discipline and loose inter-governmental cooperation arrangements cannot continue to be the way forward for the eurozone.
Instead, a new political approach would include a real European executive that is democratically accountable before a parliament of the eurozone and leads economic policy with expertise and a larger degree of political autonomy. [...]
Third, unlike the current EU budget, this eurozone budget should entail the ability to raise taxes, decide on expenditures and issue debt. The last point means it would be a supplier of eurozone risk-free assets in times of crisis, thereby complementing the constrained capacity of member states to supply safe assets. This would be crucial if member countries were to default on their national sovereign debt.
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