Macroeconomic stability of the euro area: Fiscal policy and risk-sharing mechanisms as stabilization tools for the Eurozone

Abstract

The first aim of the Eurozone creation was to guarantee the stability, the convergence and the co-operation of the member states. However, important divergences occurred between the core and the periphery countries. Nations are currently facing macroeconomic instability and imbalances. It becomes crucial to devise measures to help the monetary union. In the absence of a variable exchange rate system and an independent monetary policy, the solution would be to implement risk-sharing mechanisms. A budget centralized at the euro area level and a common unemployment insurance scheme are good candidates and would work as stabilization tools. Decision makers must take their responsibilities and collaborate. It is a matter of the survival of the euro area.