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Restoring Credible Economic Governance to the E urozone
Author(s) -
Herzog Bodo,
Hengstermann Katja
Publication year - 2013
Publication title -
economic affairs
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.24
H-Index - 18
eISSN - 1468-0270
pISSN - 0265-0665
DOI - 10.1111/ecaf.12009
Subject(s) - moral hazard , corporate governance , sovereignty , economics , punishment (psychology) , ex ante , process (computing) , political science , market economy , finance , macroeconomics , law , incentive , psychology , social psychology , politics , computer science , operating system
This paper discusses new institutional rules for a stable and lasting E uropean M onetary U nion ( EMU ). We propose a return to a strict and sustainable economic governance framework, which is mainly driven by market forces within a smart rule‐based environment. Our recommendations are: ( a ) ex ante conditionalities with a tough monitoring process to avoid moral hazard in the future; ( b ) further enhancement of the S tability and G rowth Pact; and ( c ) ultimo ratio punishment to be able to respond to the unique constellation of fiscal–monetary interaction and new rescue facilities. Countries violating fiscal rules for more than four years in a row will thus lose their fiscal sovereignty or will have to resign from the E urozone. After fulfilling the ex ante conditionalities as well as all required criteria, the country either will recover its fiscal sovereignty, or, in case of exclusion, will be given the option to rejoin EMU under certain conditions.