Will the reform of the institutional framework restore fiscal stability in the eurozone?
- The key challenge for the fiscal reform of the eurozone is not better fiscal policy coordination or supervision. It is this: • Make sure that the financial sector can absorb a sovereign bankruptcy without a financial meltdown. This requires much tighter regulation, more effective supervision, continued access of banks to ECB refinancing in the event of a sovereign restructuring. For a transitional period, this also requires an ESM type 'rescue' institution. • The current fiscal reform package fails to deliver this.
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