New research: CEPR Policy Insight No.91

Wednesday, January 17, 2018

Download here.

See VoxEU column summary here.

The divide between member states is preventing meaningful reform to the financial architecture of the euro area. This policy insight provides recommendations to unify the fiscal direction of the euro area and protect it against major crises. These include: 

  • Breaking the doom-loop of sovereign bail-outs of private banks by introducing a sovereign concentration charge, requiring banks to raise more capital if their sovereign debt goes above a certain level;
  • Replace the current system of fiscal rules that looks at reducing short-term deficit with one that focuses on long-term debt reduction;
  • Create a euro area fund financed by national contributions that would help member countries absorb large economic shocks and;
  • Offer a diversified synthetic euro area bond to give investors an alternative to national sovereign bonds.

 The French and German authors hold a range of opinions but have worked together to overcome the lack of reform caused by their countries’ typically opposing views.