The Eurozone's Forgotten Economic Government

The institutional design of EMU as it emerged in the late 1990s was fundamentally lopsided. Monetary policy was unified at the EU level, yet most other economic policy powers remained in the hands of national governments. This produced an unforeseen conflict between national sovereignty and a new conception of sovereignty that called for its exercise at the European level. This conflict became evident after 2009 with the deepening of the Eurozone crisis, but it was not at all new. From this perspective, the Eurozone crisis is above all a crisis of economic governance in a situation of divided sovereignty. The institutional status quo had become untenable, but there was no magic formula to strengthen economic governance without further encroaching on national sovereignty. Under intense pressure, member states have de facto moved toward shifting more sovereign powers to the EU level. They have adopted treaty revisions that could ultimately reshape the landscape of economic governance – the creation of the ESM and a Fiscal Pact. Most recently, they have endorsed the principles of a single banking supervisory mechanism, a “pact for growth and jobs”, and a “specific and time-bound road map for achieving a genuine economic and monetary union.” Yet the crisis will not abate as long the credibility of collective economic governance is in doubt. The main question for the future is whether the member states will continue moving toward stronger EU economic governance, or whether they will eventually reassert the national locus of sovereignty.