New data on member states preferences confirm a North-South divide on various aspects of EMU reform. This implies that the more politically feasible reform scenarios are likely to be based on mutual concessions, whereby the ‘South’ accepts more supranational governance while the ‘Norths’ concedes to some form of fiscal easing.

Introduction

There is no shortage of EMU reform proposals, however political consensus necessary for the implementation of any of them is elusive. The Five presidents’ report, Commission’s blueprints as well as myriad of scholarly and practitioners’ proposals outline viable solutions, but without reference to their political feasibility. Hence, there is a need for a systematic study of political economy cleavages within the EU, which could indicate what reform designs increase the likelihood of consensus among member state governments.

The experience from the Euro crisis suggests that preferences of member state governments on EMU reform designs differ. Some member states prefer Keynesian macroeconomic policies for the stabilization and completion of the EMU that rely on fiscal expansion on national level in combination with some elements of fiscal redistribution or risk-sharing within the single currency area. In contrast, other governments prefer fiscal discipline and prevention of fiscal deficits instead of any form of redistribution. Finally, governments may also opt for pragmatic positions that vary from one policy proposal to the next and do not reflect any consistent set of underlying preferences (see Chart 1 for schematic depiction of this policy trade-off). The knowledge of policy preference is thus important for the EMU reforms proposals that strive to accommodate constraints imposed by preference constellations among member states in order to increase the feasibility of their adoption and implementation.

Download Policy Brief #1: Searching for EMU Reform Consensus