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Article - EMU Governance : Only One Bed for Two Dreams

Only One Bed for Two Dreams : A Critical Retrospective on the Debate over Economic Governance in EMU, Journal of Common Market Studies vol. 44 n° 4, pp. 823-844.

Discussions on the appropriate economic governance of the European monetary union started as soon as the project for a common currency began to be outlined, and they have not yet ended. Throughout the history of Economic and Monetary Union (EMU), from the Werner report of 1970 to the 2005 reform of the Stability Pact and the 2006 discussions on the role of the Eurogroup in the identification and the correction of economic divergence within the euro area, advocates and opponents of economic policy coordination have been exchanging arguments in a never-ending controversy. On the one hand, a school of thought has consistently been arguing that once a core set of fiscal discipline principles are enforced, there is no need for further constraints on national economic policy autonomy ; on the other hand, another school of thought has been as consistently claiming that a well-functioning union cannot be based on fixed rules alone and that some form of fiscal coordinated decision is also required.

The contrast with the monetary side is striking. Here also, there has been no shortage of controversies since the 1970s : think of the discussions between the “economist” and the “monetarist” approaches to monetary unification, between the advocates of central bank independence and the doubters, between the proponents of parallel currencies and the defenders of the single currency, between those who had faith in monetary rules and the supporters of inflation targeting, etc.. But those controversies were settled one by one and while new debates have emerged and will certainly emerge, there is a learning process at work. Today’s discussions may have some common features with those of yesterday, but they are not simply a way to reopen the same eternal and unsettled controversy.

The purpose of this paper is to investigate why economic governance of EMU remains an matter for disagreement. Is it due to divergent policy priorities within the same analytical framework ? To a reliance on different economic models ? Or to non-economic considerations, such as the link with political union ?

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