## Euro 2.0: Past, Present, and Future of Euro Area Integration

_IMF News, June 25, 2018_

## Source details

**Canonical URL:** [Euro 2.0: Past, Present, and Future of Euro Area Integration](https://www.imf.org/en/news/articles/2018/06/22/sp062518-euro-area-integration)

## Other formats

- [Markdown version](/en/news/articles/2018/06/22/sp062518-euro-area-integration/index.md)
- [Structured JSON version](/en/news/articles/2018/06/22/sp062518-euro-area-integration/index.json)
- [Bundle manifest](/en/news/articles/2018/06/22/sp062518-euro-area-integration/bundle-manifest.json)

## Bibliographic details
- Published: June 25, 2018

---

### Introduction / Context
- Remarks delivered by Christine Lagarde, IMF Managing Director, at “The Euro at 20 Conference” — Dublin, Ireland.
- Theme: assessing 20 years since creation of the euro, taking stock of achievements, crises, lessons learned, and policy priorities for a strengthened “euro 2.0.”

### Looking back — 20 Years of the Euro (Findings)
- The common currency capped a 50-year quest to tear down economic borders.
- Today, 19 of 28 European Union members are part of the euro area, and the euro is the world’s second major reserve currency.
- In the European Union, real GDP per person has increased 40 percent since the mid-1990s. (Real GDP per capita measured in purchasing power parity terms.)
- In the run up to the adoption of the euro in 1999, strong convergence occurred in real income levels among the original euro area members; interest rates began to converge even before the common currency was introduced.
- In some cases these shifts contributed to excessive borrowing, unsustainable growth levels, and eventually, the euro area crisis.
- Several countries hit hardest during the global financial and euro area crises saw their income growth fall significantly behind that of their peers; many are only now recovering to pre-crisis levels.
- Ireland case study:
  - Joined the European Communities in 1973; founding member of the European Exchange Rate Mechanism in 1979; signed the Maastricht Treaty in 1992.
  - Up until the crisis, Ireland experienced the “Celtic Tiger” boom beginning in the early-1990s.
  - In real terms, average Irish income per capita more than doubled since signing of the Maastricht treaty.
  - Growing financial integration supported rapid expansion of credit and unsustainable real estate booms in countries such as Ireland and Spain; when boom turned to bust, Irish banks ran into serious trouble, placing Ireland at the heart of the euro area debt crisis.
  - After difficult choices, sacrifices, and support from European partners and the IMF, the Irish economy has rebounded strongly.

### Taking Stock — The Current Moment (Actions and Institutional Reforms)
- Crisis-response institutions and actions:
  - The European Stability Mechanism and its predecessors worked with the IMF and provided over 250 billion euros in loans to the five countries hit hardest by the crisis.
  - The European Central Bank (ECB) signaled in 2012 its willingness to do “whatever it takes” to preserve the currency union.
  - Development of the Banking Union, including the Single Supervisory Mechanism and Single Resolution Mechanism, helped create a more unified banking sector.
- Lessons learned:
  - The cost of the banking crisis, including protection of banks’ wholesale creditors, was largely borne by taxpayers in some cases; the new bank recovery and resolution regime is designed to make banks safer and limit the risk that taxpayers will be asked to help bail out banks.

### Looking Ahead — Euro 2.0 (Policy Recommendations)
- Christine Lagarde identifies three major areas for enhancing resilience and securing the euro area’s future:
  1. Complete the Banking Union
     - Establish an adequate backstop for a Single Resolution Fund.
     - Implement a common deposit insurance scheme.
     - Rationale: insuring credit risks across member countries can weaken the “sovereign-bank doom loop.”
  2. Integrate financial and capital markets
     - Ensure regulatory and supervisory capacities are prepared for the influx of financial firms moving to continental Europe — and Ireland — as a result of Brexit.
     - Over the medium-term, pursue greater harmonization of national insolvency regimes and securities regulations.
     - Example: European Venture Capital Regulation facilitates cross-EU venture capital financing for start-ups.
  3. Introduce greater fiscal risk-sharing while reducing underlying fiscal risks
     - Avoid overreliance on monetary policy as in the last crisis.
     - Greater risk-sharing combined with larger national buffers would allow countries to avoid raising taxes and cutting spending during downturns.
     - The IMF proposed a central fiscal capacity described as “a rainy-day fund”; other proposals for a euro area fiscal capacity have been put forward.
     - Emphasis: every country must comply with common fiscal rules and reduce public debt where it is too high.
- Complementary recommendation:
  - Continue structural reforms to address weaknesses holding back growth and to improve resilience and productivity.

### Framing and Urgency
- Current macro conditions described as “solid growth and steadily declining unemployment across the euro area” make this the time to act.
- Quoted adages highlighting urgency:
  - Maria Edgeworth: “If we take care of the moments, the years will take care of themselves.”
  - John Fitzgerald Kennedy: “The time to repair the roof is when the sun is shining.”
  - Bono: “It is stasis that kills you off, not ambition.”
  - W. B. Yeats: “In dreams begins responsibility.”

### Conclusion
- Securing the euro area for the next twenty years requires patience, creative thinking, and increased cooperation.
- The objective: a euro area that is not merely a union of convenience in calm waters but “a strong shield amidst storms.”
- Call to action for scholars and policymakers to identify problems and make progress toward solutions, with the IMF as a partner in the effort.

*Opening Remarks by Christine Lagarde, “The Euro at 20 Conference” — Dublin, Ireland, June 25, 2018.*

---


## References

- [Christine Lagarde](https://www.imf.org/en/About/senior-officials/Bios/christine-lagarde)
- [Ireland and the IMF](http://www.imf.org/external/country/IRL/index.htm)
- [Speeches](https://www.imf.org/en/news/searchnews)
- [PRESS CENTER](http://presscenter.imf.org/)
- [The IMF recently introduced our own proposal](https://www.imf.org/en/News/Articles/2018/03/26/sp032618-a-compass-to-prosperity-the-next-steps-of-euro-area-economic-integration)
- [https://www.imf.org/en/home](https://www.imf.org/en/home)

_Source: https://www.imf.org/en/news/articles/2018/06/22/sp062518-euro-area-integration_