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European integration in the time of mistrust

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  • Francesco Spadafora

    (Bank of Italy and International Monetary Fund)

Abstract

This paper reviews the debate on completing the institutional architecture of the European Economic and Monetary Union (EMU). In response to the sovereign debt crisis, reforms have resulted in significant progress towards greater integration, as best epitomized by the establishment of the European Stability Mechanism and the first two pillars of a Banking Union. In addition, the fiscal governance framework has been overhauled, with stricter rules and more powers at the supranational level to affect national budgetary policies. Because of these reforms, as well as of other policy measures at the national level, risks in the sovereign and banking sectors have been substantially reduced. The paper argues that major advances in risk reduction have not been matched by parallel progress in risk sharing: this asymmetry leaves the EMU vulnerable and may undermine its longer-term viability. Priority needs to be given to closing the gap between risk sharing and risk reduction as, at the current juncture, the former is in and of itself a conduit for the latter.

Suggested Citation

  • Francesco Spadafora, 2019. "European integration in the time of mistrust," Questioni di Economia e Finanza (Occasional Papers) 512, Bank of Italy, Economic Research and International Relations Area.
  • Handle: RePEc:bdi:opques:qef_512_19
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    File URL: https://www.bancaditalia.it/pubblicazioni/qef/2019-0512/QEF_512_19.pdf
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    References listed on IDEAS

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    Cited by:

    1. Francesco Spadafora, 2022. "Don’t let me down: unemployment insurance in the United States," Questioni di Economia e Finanza (Occasional Papers) 673, Bank of Italy, Economic Research and International Relations Area.

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    More about this item

    Keywords

    economic and monetary union; banking union; fiscal capacity; sovereign-bank nexus;
    All these keywords.

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
    • F45 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Macroeconomic Issues of Monetary Unions
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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