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The Euro's Reform Blockade

VonAxel Schrinner, Jan Hildebrand and Kevin O'Brien

Caught up in the turmoil over Greece, Europe remains split over how to reform the euro zone. The German government's top economic advisers want a legal exit for fiscal sinners, but others wish for a more formal union.

euro reform

The best way to fix the euro zone is to open a legal path to leave it.

That, in essence, was the recommendation over the weekend from Germany’s top panel of government economic advisers, the so-called Wise Men, to Chancellor Angela Merkel.

The report by the heads of Germany’s five top state-supported economics institutes came as no surprise. The document encapsulated the government’s policy: Strict adherence to the economic rules of the euro, and a way out for nations that can’t meet them.

No mention of a transfer union, or the creation of a Euro Zone Parliament, or a more formal economic government that would address the structural maladies afflicting the European common currency used by 19 nations from Ireland to the borders of Russia.

In the past, Ms. Merkel has praised the members of the German Council of Economic Experts as her “regulatory conscience,” although she’s never felt the need to take their advice 100 percent of the time. That could again be the outcome this time, as Ms. Merkel, against strong opposition from conservatives in her own party, seeks a middle ground on Greece.

In its report, “Consequences of the Greek Crisis for a More Stable Euro Zone,” the panel rejects the various proposals circulating in Europe to create a more formal integration of euro-zone economies, such as the establishment of a European treasury, a European Union unemployment insurance fund for all of its citizens and an economic government with tax and spending powers.

All of these plans would force Germany in one way or the other to raise its commitment to the euro from a voluntary club of prosperous colleague nations that observe spending and deficit rules to an integrated regional government, with tax and spending policy delegated in some fashion to a common government.

That is a political red line for Ms. Merkel, who has still managed to anger some hardliners in her own Christian Democrat-led coalition with calls for a third, €86-billion rescue package for Greece.

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