Euro Bank Chief Warns of Repeated Crises in Currency Zone

A senior member of the European Central Bank (ECB) has warned that the monetary union of the Eurozone is "imperfect" and will face "repeated crises if we fail to address our economic and political differences".

Speaking on Thursday during Ambassadors Week in Paris, Benoît Cœuré, a Member of the Executive Board of the ECB, said the current crisis in the Eurozone represents a fundamental test of the monetary union's ability to achieve the dual objective of economic and political commonality.

He told the summit: "Our institutional framework is not yet sufficient to complete Economic and Monetary Union when it comes to economic, fiscal and financial matters. The ECB does not currently have a strong political counterpart in these areas.

"Thus, our monetary union will remain imperfect, will not be as prosperous as it could be and will face the risk of repeated crises if we fail to address our economic and political differences," he said.

Central to the problem with the Euro is that member states have differing fiscal policies and taxation regimes, among many other financial indicators. For a currency to work, there needs to be harmonization of fiscal policies, which is inherently impossible in the current Eurozone, because of political differences.

Fragility of Economic and Political Union

Cœuré said: "The Euro has proved to be something of a paradox: confidence in the single currency remains very high, despite the fact that the euro area is struggling to emerge from the crisis and the fragilities of our economic and political union have threatened the integrity of the euro area on several occasions."

He cited a spring 2015 Eurobarometer survey which found that 51 percent of respondents said that having the Euro had not mitigated the negative impact of the crisis.

In a survey conducted by Opinium Research between 29 June and 10 July 2015, 63 percent of respondents in the Euro area (a sample of more than 6,000 people living in France, Germany, the Netherlands, Italy, Spain and Portugal) said they thought that the Greek debt crisis had been handled badly at European level.

Referring to the Greek bailout crisis, he said: "It has been necessary to develop new instruments as a matter of urgency in the midst of the crisis. Some of those instruments, particularly the financial assistance programs, are governed by a decision-making mechanism which is not conducive to the development of shared responsibility for policies concerning the future of the euro area.

"This intergovernmental decision-making process involves endless negotiations, particularly when it comes to issues with redistributive implications, and highlights the differences between the positions of the various Member States," he said.

Although he described the Eurozone as an "irreversible" project, he admitted that "maintaining this approach would condemn us to a future of low growth and repeated crises. At a time when global growth may be slowing down, it is our shared responsibility to avoid the same fate befalling the euro area."