Overcoming the Euro Crisis and Prospects for a Political Union

The euro crisis and a new debate about immigration in Europe have undermined support for the EU while the unsolved Greek debt problems as well as the ECB's quantitative easing policy have raised new crucial policy issues. It is necessary to identify the key issues of Eurozone stabilization and to clarify the economic benefits from monetary integration. As regards the economic welfare analysis of the euro, the new model presented shows the benefits of the euro's reserve currency position, namely in the framework of a neoclassical growth model with seigniorage based on international reserve holdings. Discounted benefits are about 10 000 € per capita in a stable Euro area. Thus the benefits are bigger than often considered, at the same time one may raise the question of whether the existing institutional setting of the Eurozone is sufficient for achieving long-term stability and prosperity. As regards the envisaged third rescue package for Greece it is emphasized that a haircut of public creditors along with adoption of a Greek capital levy plus privatization efforts are required to achieve debt sustainability and growth. The traditional interpretation of subsidiarity in the EU is found to be misleading and the vertical division of politics is destabilizing.