Persistent institutional malfunctioning in the Eurozone

Institutional change in the Eurozone is driven by the need to ensure the immediate survival of the euro rather than confronting the structural weaknesses of the common currency. The failure to deal with underlying weaknesses is demonstrated by the policy of “selective support”, whereby markets and instruments considered vital for the survival of the euro are often adopted under pressure. This type of support is most prominently demonstrated by the TARGET2 clearing system within the Eurosystem of central banks. The system allows the euro to survive but also facilitates the rise of intra-EMU imbalances, as is reflected in divergent claims and liabilities of member states, leading Germany to accumulate intra-EMU claims on others. Instability thus becomes entrenched in the Union, while Germany maintains a hegemonic position.