April 26, 2017

The Euro has been at the center of heated debate since the United Kingdom voted last June to leave the European Union. Andreas Dombret, an executive board member of the Deutsche Bundesbank—Germany’s central bank—visited SIPA on April 20 to discuss challenges facing the Euro area from the German perspective.

Dombret's remarks came in conversation with Patricia Mosser, director of SIPA’s Initiative on Central Banking and Financial Policy, who also moderated questions from the audience. The event was co-sponsored by the Initiative and SIPA’s Center on Global Economic Governance.

“The Euro-area crisis revealed severe structural flaws,” Dombret said. “The lessons learned from that are that we must have a framework that can absorb shocks and deal with heterogeneous areas across Euro area. Because while [European Union] member states are exposed to divergent hazards, our common money affects everyone.”

Dombret went on to identify the lack of suitable institutional framework and an outdated cooperation framework as barriers to regional integration in Europe. But he also acknowledged that reforming the institutional framework is easier said than done.

“The current challenge is not only about solving institutional imbalance,” Dombret said. “It’s about solving it in a political, socially, and culturally appropriate manner. Europe is struggling between easing short term [fiscal] pain and making long-term reform.”

Dombret offered two options for long-term reforms: shifting responsibility for financial and monetary policy to the supranational level or creating a fiscal union. He conceded, however, that it would be challenging to gain political support for either option. 

Dombret also said the rise of populism is another factor that makes it more difficult to gain political buy-in from voting citizens.

“The crisis in Euro area is a crisis of confidence,” he said. “Populism is at worrying levels. Nationalist movements and protectionism are giving policymakers pause. International trade and integration was always viewed as good things but now the conversation is about if we should cooperate at all.”

While globalization has left some people worse off, Dombret added that “protectionist policies shrink the overall and endorsing protectionism will not enable politicians to evade issues of social cohesion in their countries.”

— Serina Bellamy MIA ’17