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Fixing Europe in the short and long run: The European Federal Institute

Guiso, L. & Morelli, M. (2014) “Fixing Europe in the short and long run: The European Federal Institute“, VoxEU Organisation, 03 November.


Eurozone countries need to stop the stagnation and improve their management of future crises. In this column, the authors argue that both issues should be addressed simultaneously. To achieve this goal, they propose the creation of a European Federal Institute. This Institute would coordinate short-run, antirecession measures, and implement steps towards a federal budget that would fix the European institutional design in the long-run.

Making Europe grow now and work better later – two birds with one stone. Eurozone countries are facing two main questions:

  • How to stop the current stagnation?
  • How to improve the ability of the Eurozone to manage future crises?

We argue that it is necessary to face both simultaneously.

The first short-run problem is the immediate need to jumpstart growth. Now that the Crisis is touching central and northern European countries – after having crippled the Mediterranean ones – this need is clearer than ever. The second problem is how to fix the institutional structure of the monetary union along the lines suggested in a vast literature (see among others Bordo et al. 2011, Cooper and Kempf 2004, Dixit and Lambertini 2003, de Grauwe 2011, Guiso et al. 2014).

Reforms are needed so that small future crises – crises as small as the Greek crisis was when it first came up – do not balloon into daunting situations like the one we are now facing.

We argue that these two problems must be faced simultaneously and immediately.



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