The four Presidents are proposing that a genuine EMU should be built on integrated frameworks for budgetary policies, economic policies and financial market policies, which in turn must be underpinned by greater democratic legitimacy and accountability. When we look at the options to establish budgetary policies in a monetary union, and exclude any uncoordinated conduct of fiscal policy by Member States, three possible models come to mind. First, there could be a fully-fledged fiscal union, with a central budget and federal debt issuance. It is not on the cards in the short run as important steps would need to be taken to establish the necessary euro area-wide political legitimacy and governance. The second model would involve sharing sovereignty on national fiscal policies, with reciprocal control of public expenditures serving as a basis for common debt issuance by governments. Such reciprocal control would also require strong democratic legitimacy, involving national parliaments. The third model would only rely on unqualified adherence to fiscal discipline by Member States, without risk-sharing. None of these three models alone is possible in the short run. There will be a combination of the three. The desirable mix has to be decided upon by the people of Europe with the appropriate democratic checks. EMU is a unique construct, tailored to European specificities, and it need not resemble any existing federation. Let me give some examples.
This did not prove to be the case. As Jacques de Larosière, the former IMF Managing Director, once remarked, what was supposed to be a system of “peer pressure” too often turned into a system of “peer concessions” or “peer arrangements”. On the whole, the Maastricht framework proved unable to deal adequately with the high degree of economic and financial integration in the euro area. It was not fully understood that sharing a currency means much more than sharing the same monetary policy. It is a commitment to ensuring sound fiscal, economic and financial conditions. Euro area countries largely overlooked the substantial spillover effects that national policy decisions would have on their fellow countries in EMU euro area partners. The ongoing crisis has brought these shortcomings into sharp focus. 3. Short and longer-term solutions to the crisis: going beyond the Maastricht framework  3.1. The ECB’s contribution to resolving the crisis  Let me now turn to Europe’s policy response to the crisis. The EMU framework relies on a strict separation between monetary policy on the one hand, and fiscal and economic policies on the other. The monetary policy function is carried out by the ECB under a clear mandate: maintaining price stability over the medium term in the euro area. To achieve this goal, the ECB has been given full political and operational independence. Since the start of the crisis, the ECB has reacted forcefully. Since 2008, it has lowered its policy rate from 4.25% to 0.75% now.