Living (dangerously) without a fiscal union. Bruegel Working Paper 2015/03

The euro area’s political contract requires member nations to rely principally on their own resources when confronted with severe economic distress. Since monetary policy is the same for all, national fiscal austerity is the default response to counter national fiscal stress. Moreover, the monetary policy was itself stodgy in countering the crisis, and banking-sector problems were allowed to fester. And it was considered inappropriate to impose losses on private sector creditors. Thus, the nature of the incomplete monetary union and the self-imposed taboos led deep and persistent fiscal austerity to become the norm. As a consequence, growth was hurt, which undermined the primary objective of lowering the debt burden. To prevent a meltdown, distressed nations were given official loans to repay private creditors. But the stress and instability continued and soon it became necessary to ease the repayment terms on official loans. When even that proved insufficient, the German-inspired fiscal austerity was combined with the deep pockets of the European Central Bank. The ECB’s safety net for insolvent or near-insolvent banks and sovereigns, in effect, substituted for the absent fiscal union and drew the central bank into the political process.

EU Naval Force EUNAVFOR MED sets sail in troubled waters. CEPS Commentary, 26 June 2015

Apprehending pirates in the Indian Ocean is one thing. Defeating the networks through which smugglers traffic migrants through North Africa is quite another. The European Union’s new naval force deployment in the Mediterranean - EUNAVFOR MED - drew criticism from international partners and the general public alike when plans for a “boat-sinking” operation were unveiled, raising fears about unacceptable levels of violence and collateral damage; a European version of Mexico’s drug war. Yet the problems of EUNAVFOR MED lie less in clumsy public diplomacy than in the perilous mismatch between its stated objectives and the absence of a clear strategy and mandate, and this creates both operational and political risks for member states. Phase 1 of the operation: surveillance and assessment, has begun with no legal mandate to carry out the crucial phases 2 and 3: seek and destroy, whose military planning and outcomes are undetermined. Despite these limitations, the naval force could nevertheless mark a turning point in the EU’s security narrative, because it means that the Union is finally addressing the threats to security and the humanitarian tragedies in its southern neighbourhood.