The key to a better functioning EMU is closer surveillance and deeper coordination of economic policies. Leaders must start living up to the responsibilities that come with sharing a single currency. They must recognize the impact that national economic policies have on the euro area as a whole, and thus discuss and coordinate economic programs at the euro-area level.
Here, the launch of the European Economic Recovery Plan – the initiative for an EU-wide fiscal stimulus equivalent to 1.5 percent of GDP, endorsed by the European Heads of Government in December – constitutes a major step forward.
This must now be followed by closer budgetary monitoring, particularly given that fiscal stimulus measures, the economic downturn, and bank rescue plans will take a toll on public finances.
The Stability and Growth Pact must remain the cornerstone of the EU's budgetary framework, and effective surveillance and peer support will be vital to help member states work towards balanced budgets once the economy rebounds.
Deeper fiscal surveillance should be matched by broader economic surveillance, especially since current-account imbalances have become more acute during the crisis. The European Commission is now working on extending the focus of surveillance beyond fiscal policy so that we can identify risks stemming from macroeconomic imbalances or changes in competitiveness and address them before they become entrenched.
Finally, euro-area nations must strive harder to find common positions on international issues and to speak with a single voice in the global arena. This is the only way to promote and defend the EMU's economic interests in a world where the challenges are global and overcoming them will increasingly depend on multilateral cooperation.
Consider November's international summit on the financial crisis. Agreeing on a common position ahead of the meeting gave Europe a greater role. When the euro area manages to agree swiftly on a coordinated position, this can be instrumental to finding agreement in the EU as a whole and internationally. It is vital we now build on this success and develop a genuine international strategy for the euro.
The European single currency has been a major success, but it remains a work in progress. A decade after the euro's introduction, we must follow the example of its founders and turn crisis into opportunity by uniting in a spirit of cooperation and ambition – and thereby reinforce the EMU's foundations.
The author, Joaquin Almunia, is the European Union's Commissioner for Economic and Monetary Affairs Project Syndicate.
(China Daily January 13, 2009)