Forex Flash: Old EU institutional framework is inadequate – Goldman Sachs

FXstreet.com (Barcelona) - It is now almost universally acknowledged that the Euro crisis is proof that the original institutional set-up for the currency union was inadequate. Where there is less agreement is on the kind of institutional change needed to achieve long-term stability for the Euro area. According to the Economics Research Team at Goldman Sachs, “One school of thought argues that only further fiscal and political integration, which would also include permanent risk-sharing and fiscal transfers between countries, can guarantee the long-term survival of the monetary union.”

A further deepening of the fiscal union beyond the changes already made over the last year would face significant political and legal hurdles in Germany. A separate argument against the introduction of a deeper fiscal union is the risk of moral hazard that deeper union would present: “if a country can rely on financial support from others, it may be more cavalier about its own fiscal position or about other risks that may weaken its fiscal position at a future date.” the team warns.