The EMU Paradox: Centralization and Decentralization in EU Macroeconomic Policy
The EMU Paradox: Centralization and Decentralization in EU Macroeconomic Policy
Economic and Monetary Union (EMU) embodies an approach to policy-making that is both highly centralized and highly decentralized. In the monetary sphere, member states share a single monetary policy, but national central banks play a key role in the decision-making structures of the European Central Bank. In the economic sphere, member states retain the final say over the formulation and implementation of fiscal policies. This chapter explores the origins of this paradoxical approach to policy-making and its implications for the smooth functioning of the single currency. Its central argument is that EMU’s institutional design is the result of pulling and hauling between national central banks on the one hand and national governments on the other. Though the euro area faces pressure to centralize economic policy in the light of the global financial crisis, the intergovernmental bargain on which EMU rests shows few signs of shifting in this direction.
Keywords: Economic and Monetary Union, European Central Bank, stability and growth pact, financial crisis
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