A Monetary Union for All EU Members

Summary:

A majority of Swedish voters are still reluctant to join the euro area. For this to change, the monetary union would have to be more successful in bringing economic prosperity. This, in turn, would require taking some steps forward as well as backward. A forward step would be to complete the banking union and a backward step would be to phase out the fiscal transfers.

It is important for the monetary union to be able to deal with financial crises, and through reforms undertaken, the union has much better crisis management today than in 2008. However, the interconnection between national banking sectors and Member States’ public finances poses a risk for both the banking sector and public finances. The European Central Bank has created fiscal space in countries with weak public finances by buying sovereign debt. But this creates implicit liabilities for other member countries, which makes adopting the euro a less attractive option for Sweden.

The current fiscal rules would benefit from both simplification and flexibility. However, since allowing treaty changes has its own risks, it seems safer to build on the existing framework for the fiscal rules. Finding ways to enforce fiscal discipline would help Member States create their own fiscal space, which ultimately is what is needed for structural reform as well as effective crisis management.

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