Lacking “Europeanisation” of National Business Cycles as a Risk for the Euro Area

While a largely positive assessment can be made for the first ten years of Economic and Monetary Union,
the global financial market crisis is putting the viability of EMU to a test. Owing to the smooth interplay between the institutions shaping economic policy, the capacity of the monetary union to survive is beyond
doubt. Moreover, the introduction of the common currency and the implicit processes of policy adjustment
have already made for a certain harmonisation of the business cycle within the euro area. Nevertheless,
since perfect harmonisation will not be achieved, major shocks like the present financial market crisis oblige monetary and fiscal policy to adopt a flexible approach. In the absence of other mechanisms to smooth such shocks (e.g., fiscal federalism in the USA), a higher degree of economic policy coordination
and still closer co-operation between the euro area member countries and the ECB is urgently recommended.