The EMU after the Euro Crisis: Lessons and Possibilities - Findings and proposals from the Horizon 2020 ADEMU project

The EMU after the Euro Crisis: Lessons and PossibilitiesFindings and Proposals from the Horizon 2020 ADEMU projectEdited by Ramon Marimon and Thomas Cooley Centre for Economic Policy Research33 Great Sutton Street London EC1V 0DXTel: +44 (0)20 7183 8801 Email: cepr@cepr.org www.cepr.orgThis eBook provides an overview of the findings and proposals of the Horizon 2020 ADEMU research project (June 2015 – May 2018). The main aim of the project was to reassess the fiscal and monetary framework of the European Economic Monetary Union (EMU) after the euro crisis, when this framework is still in transition and under debate. The research has used, and has further developed, the tools and theories of modern economics and finance, as well as of modern legal research, with three aims: • to gain a better understanding on how economies, with heterogeneous agents, behave and react to policies in times of crisis and recession – with a focus on European economies through the euro crisis; • in light of this enhanced understanding, to reassess the current EMU framework and existing proposals for reform – in particular, the Presidents’ Reports and European Commission proposals; and • to come up with new proposals to strengthen the resilience and competitiveness of the EMU which can be implemented with consensus in the current heterogeneous euro area. The first aim required covering a large number of related topics, including sovereign debt crisis, risk-sharing and economic stabilisation policies, fiscal stimulus and consolidation policies, fiscal multipliers, optimal tax policies in the global and automated economies, financial stability, and macroprudential and unconventional monetary policies. The second implied focusing on the financial and economic stability of the euro area; in particular, the incomplete Banking Union and the not yet fully functioning Economic and Fiscal Union. The third aim resulted in two new proposals to strengthen the EMU’s risk-sharing and economic stabilisation capacity: the European Stability Fund (ESF) and a European Unemployment Insurance System (EUIS). 9781912179121ISBN 978-1-912179-12-1CEPR PressMay 2018CEPR PressA VoxEU.org BookThe EMU after the Euro Crisis: Lessons and Possibilities The EMU after the Euro Crisis: Lessons and PossibilitiesFindings and proposals from the Horizon 2020 ADEMU projectHorizon 2020 European Union Fundingfor Research & Innovation CEPR PressCentre for Economic Policy Research33 Great Sutton StreetLondon, EC1V 0DXUKTel: +44 (0)20 7183 8801Email: cepr@cepr.orgWeb: www.cepr.org ISBN: 978-1-912179-12-1Copyright © CEPR Press, 2018. The EMU after the Euro Crisis: Lessons and PossibilitiesFindings and proposals from the Horizon 2020 ADEMU projectEdited by Ramon Marimon and Thomas CooleyA VoxEU.org eBookCEPR PressADEMU is a European Union Horizon 2020 research and innovation programme under grant agreement No.649396. Any works or results included within the material published reflect only the authors’ views. The European Commission is not responsible for any use that may be made of the information it contains. Centre for Economic Policy Research (CEPR)The Centre for Economic Policy Research (CEPR) is a network of over 1,000 research economists based mostly in European universities. The Centre’s goal is twofold: to promote world-class research, and to get the policy-relevant results into the hands of key decision-makers. CEPR’s guiding principle is ‘Research excellence with policy relevance’. A registered charity since it was founded in 1983, CEPR is independent of all public and private interest groups. It takes no institutional stand on economic policy matters and its core funding comes from its Institutional Members and sales of publications. Because it draws on such a large network of researchers, its output reflects a broad spectrum of individual viewpoints as well as perspectives drawn from civil society. CEPR research may include views on policy, but the Trustees of the Centre do not give prior review to its publications. The opinions expressed in this report are those of the authors and not those of CEPR.Chair of the Board Sir Charlie Bean Founder and Honorary President Richard Portes President Richard Baldwin Research Director Kevin Hjortshøj O’Rourke Policy Director Charles Wyplosz Chief Executive Officer Tessa Ogden ContentsForeword viiIntroduction 1Ramon Marimon and Thomas Cooley1 Lessons from the euro crisis an dealing with its debt overhang 13Giancarlo Corsetti2 A European Stability Fund for the EMU 25Ramon Marimon3 Agreeing to an unemployment insu