Money in Motion

Think Tank to Euro Zone: Get It Together

German bonds aren't selling, yields on Spanish and Italian bonds are squeezing, and the euro is showing the strain. Good thing someone's dispensing tough love. 

The calls are increasing for the European Central Bank to wade into the European debt crisis, but officials are resisting. So are factions in various countries - like, say, Germany, and the euro has been falling.

In a new policy brief, Bruegel, the European think tank, says enough is enough: "The Economic and Monetary Union architecture must be strengthened by taking steps towards a fiscal union that involves both a political authority (a euro-area 'finance minister') and fiscal resources to prevent, manage and resolve crises." And they are calling on euro zone leaders to "adopt before the end of 2011 a Declaration outlining the contours" of these steps.

Bruegel identifies three key weakness in the current system: the idea that national policymaking can jeopardize monetary union functioning, the lack of a crisis management system, and inadequate banking supervision and regulation. The analysts argue that a new system should address all these problems. Possible solutions include a euro-area finance ministry that could help countries facing liquidity problems, better plans to deal with countries that are actually insolvent, and euro area banking oversight.

Euro-area leaders have asked the Euro-Summit President to offer proposals for some policy changes, but Bruegel argues that much more is needed. And for starters, they say, "The ECB will have to play a significant role to back-stop the financial system and the sovereign bond market."

Food for thought.

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