TOWARDS A GENUINE ECONOMIC AND MONETARY UNION Report by President of the European Council Herman Van Rompuy, Brussels, 26 June 2012 EUCO 120/12 PRESSE 296 PR PCE 102, http://www.consilium.europa.eu/uedoc.../ec/131201.pdf

The report proposes a vision for a stable and prosperous EMU based on four essential building blocks:

§ An integrated financial framework to ensure financial stability in particular in the euro area and minimise the cost of bank failures to European citizens. Such a framework elevates responsibility for supervision to the European level, and provides for common mechanisms to resolve banks and guarantee customer deposits.

§ An integrated budgetary framework to ensure sound fiscal policy making at the national and European levels, encompassing coordination, joint decision-making, greater enforcement and commensurate steps towards common debt issuance. This framework could include also different forms of fiscal solidarity.

§ An integrated economic policy framework which has sufficient mechanisms to ensure that national and European policies are in place that promote sustainable growth, employment and competitiveness, and are compatible with the smooth functioning of EMU.

§ Ensuring the necessary democratic legitimacy and accountability of decision-making within the EMU, based on the joint exercise of sovereignty for common policies and solidarity.
Cour des comptes, http://www.ccomptes.fr/Nos-activites/Cour-des-comptes

La Cour des comptes a pour mission de s'assurer du bon emploi de l'argent public et d'en informer les citoyens (selon l'article 47-2 de la Constitution).
2012 Article IV Consultation with Italy- Concluding Statement of the IMF Mission1 May 16, 2012, AN AGENDA FOR REVIVING GROWTH IN ITALY, http://www.imf.org/external/np/ms/2012/051612.htm

I. Structural Reforms to Jumpstart Growth
5. The potential gains to growth from deeper structural reforms are substantial.
6. The labor market reform bill should be passed quickly to reduce uncertainty and encourage new hires.
7. More is needed to bridge the gap between permanent and temporary workers and address the high unemployment of youth and women.
8. In product markets, priority should be given to accelerating reforms in the energy, public and professional services sectors with the broadest impact on growth.
9. Helping small and medium-size enterprises (SMEs) grow would facilitate the shift of resources to new growth areas.
Everything flows? The future role of monetary policy, Speech at the 2012 ZEW Economic Forum in Mannheim, Dr Jens Weidmann
President of the Deutsche Bundesbank and Member of the Governing Council of the ECB, http://www.bundesbank.de/Redaktion/E...ry_policy.html

There is no doubt that the crisis has delivered important findings for monetary policy and for monetary union. However, my key message today is to make clear that the paradigms that have been valid to date have by no means suddenly lost their validity. On the contrary, given the challenges that we are facing today, we should not recklessly throw long-held principles overboard and turn our backs on the lessons from the past.

Ultimately, monetary union in its current institutional form was created as a result of lessons learned from past errors. And by that, I do not so much mean German hyperinflation at the beginning of the 1920s, as is all too often assumed by foreign observers. Instead I mean the monetary policy experience gained in the 1970s and 1980s with the extremely heterogeneous development of inflation in Europe. Countries with politically independent central banks and a clear primary objective of price stability, such as Germany, had much lower inflation rates than countries in which central banks were obliged to follow politicians’ instructions and were additionally called upon to pursue fiscal and economic policy goals. This is one of the reasons why the Bundesbank, with its culture of stability, was chosen as a founding model for the Eurosystem.

An independent central bank is necessary for stable prices, but more than that is needed. Price stability is also jeopardised by unsound public finances. If public finances get out of hand, the central bank can come under overwhelming pressure to jump to fiscal policy’s rescue and, in so doing, can undermine its primary objective of price stability.

This lesson is not just derived from theoretical models, it has been evidenced time and time again in the past. A particularly good example from history is the Latin monetary union comprising Italy, France, Belgium, Switzerland and Greece. Even before the treaty of union came into force, Italy’s debt exploded owing to the war with Austria. On 1 May 1866, the government took out a loan with the Banca Nazionale to finance this debt for which Italy departed from the bimetallic standard and imposed an enforced rate of exchange for its banknotes. This enforced monetary financing of war debts triggered the first severe crisis of the Latin monetary union and fuelled a permanent mistrust between the member states.