Europe According to Draghi

If joint fiscal action is to be undertaken, a specific mechanism would be needed to trigger it. One could think of a joint decision procedure that would, under certain conditions, require budget laws to be approved by the national parliament and a majority of partner countries (or the European Parliament).

Or one could think of a mechanism inspired by the imagined by Alessandra Casella of Columbia University. In this scenario, countries would be allocated a deficit permit consistent with the desired aggregate stance, but would be free to trade them; a country willing to post a lower deficit thus could cede its permit to another one willing to post a higher deficit. In this way, the aggregate stance could be achieved while accommodating national preferences.

Any mechanism of this sort raises a host of questions. But the fact that the official in charge of the euro is raising the issue indicates that the common currency’s architecture remains in flux.

A few months ago, the consensus was that the time for redesigning the euro had passed, and that the eurozone would have to live with the architecture inherited from its crisis-driven reforms. Not anymore. It may take time before agreement is reached and decisions are made, but the discussion is bound to resume. That is good news.

Jean Pisani-Ferry is a professor at the Hertie School of Governance in Berlin, and currently serves as the French government’s Commissioner-General for Policy Planning. He is a former director of Bruegel, the Brussels-based economic think tank.

Copyright: Project Syndicate, 2014.