The Bruegel Debate and Risk –Sharing Mechanisms. A New Proposal in the Context of Secular Stagnation

The starting point for this paper is given by the disintegration risk of EMU. Europe faces more than a Greek tragedy. The author of this paper believes that the euro could still be saved but the Union should assume daring choices. In turn these choices need a dose of imagination. Such as the proposal in this paper. It suggests a new risk-sharing mechanism, which rests on two assumptions: the flaws (or what the author deems to be) of the Macroeconomic Imbalances Procedure (MIP) and on the implications surfacing from the Summers’s thesis of an ongoing Secular Stagnation (SSH). The proposed new mechanism has two objectives: to provide an effective engine to face external imbalances in EMU and make it safer to do so. The analysis develops in a linear way, dividing the paper into parts. The first is devoted to the Bruegel (BC) Debate, i.e to the BC’s contributions concerning the nature of Monetary Union as well as types, purposes and limits of risk-sharing mechanisms elaborated in the economic literature. The second starts with the important consequence of SSH – a deep and lasting economic slowdown - which arerelevant for the future of EMU. After, the author reflects on the MIP’s four flawsbefore suggesting a radical reform to make it an effective instrument to face macroeconomic imbalances. Finally the core of the proposed new mechanism is provided by a Stabilisation Fund, funded by the (structural) surplus countries and designed to help member states in deficit which suffer structural high unemployment. The proposal presents an important byproduct. Indeed the Eurozone is continuously and dramatically exposed to the International cycle; more than its strength would leave to suppose. Had the suggested instrument be timely and generously applied, it could be, thanks to the automatic recycling of national demands, an effective device to endogenously create a self-sufficient internal demand of the Eurozone as a whole.