Decision-making on fiscal policies in the euro area is therefore decentralised among sovereign states, guided only by a set of fiscal rules – the Stability and Growth Pact – which the centre – the European Commission, the Council of Ministers – has limited power to enforce.
But then, what can explain the vast array of opinions on how to resolve the crisis? As I said at the beginning of my speech, the debate runs along the front lines of one of the most well known trade-offs in economics: the trade-off between efficiency and distribution, or, put differently, between sound incentives and burden sharing.