Monetary integration, crises and solidarity

Abstract

Monetary integration, crises and solidarity have been key issues of European integration from the very beginning and throughout its post-war history. Every instance of monetary integration required a modicum of conscious risk-sharing between member states, which is solidarity in the sense of generalised reciprocity of support. The common currency of the Euro was introduced against the background of rising financial instability since the 1970s. Most political economists are sceptical, however, that the euro area is viable without a quantum leap towards a fiscal federation, with a much larger common EU budget at the peak of the fiscal system. These critical accounts arguably underestimate how much solidarity is already enshrined in euro area institutions. This hidden solidarity has recently been complemented by more overt forms of solidarity, notably a massive recovery fund that hands out grants to member states. The chapter concludes with a discussion of an alternative to fiscal federalism and suggests that the reforms since 2008 can be interpreted as an emergent system of reinsurance, in which the EU provides insurance to members’ welfare states in cases of catastrophic risks to national capacities.