Handelsblatt Global Edition: Looking back on the creation of the euro and its forerunner the ERM, there was some academic doubt whether the result would be economic convergence within Europe, or divergence. Of course, politics prevailed, but pressures undoubtedly arose. How do you review that debate?
Panos Tsakloglou: Until the mid- to late 2000s there was convergence, but that process broke down with the current crisis. The big question now is what will happen in future. Can we have a monetary union without fiscal union – which in theory can happen only in an optimal currency area – and synchronization between economies?
The original thinking was that a common currency would help achieve a common business cycle, subject to the differential impact of external shocks across countries. However, that did not turn out to be the case.
If you look at historical precedents, the only successful monetary unions are those that were also fiscal unions. But a fiscal union requires a common budget, and a common budget requires some form of common state entity. Currently, this is not feasible, as in many European countries euro-skeptic parties seem to be on the ascendant.
Yet we may still see some form of common fiscal policy emerging in the near future, in the form, firstly, of Eurobonds financing large pan-European infrastructure projects. Another possibility could be a common unemployment insurance scheme. Without those kinds of initiatives we could be heading for the end of the road.
There is also a need for steps in the direction of further economic integration, some of which in fact have already taken place, such as the European Stability Mechanism (a kind of IMF for the euro region). The banking union is also such a step, despite the fact that it does not include a common deposit guarantee scheme. Nevertheless, overall, the system we have now is still quite loose.