The WEA internet conference ‘The European crisis’. Tom Vleeschhouwer and Tara Koning
Does the Euro need a transnational government to become a succes? According tot Tara Koning and Tom Vleeschhouwer: yes. Do we want such a government? Ehm… Here, their paper for the WEA internet conference on the European crisis, below the abstract.
This paper studies three important problems that have led to or have aggravated the euro crisis: moral hazard in accumulating debt by sovereigns, lack of macroeconomic policy coordination and stabilization, and macroeconomic imbalances. We use both theoretical and empirical evidence to argue that these problems were largely caused by coordination problems. We will then investigate whether a supranational government, a layer of government above all euro member countries, can alleviate these problems. We will find that macroeconomic stabilization and macroeconomic imbalances can be improved by such a government, though moral hazard cannot be solved. The only, but certainly not insignificant, obstacle seems to be that politicians and voters may not be willing to transfer their authority to this government.