The Euro Area in the Age of COVID-19
— May 22, 2020
By Kim Schoenholtz and Stephen Cecchetti
Since the euro’s beginning, European leaders believed that as tensions arose, member states would choose to form a closer union—integrating their economies and financial systems, sharing burdens and risks. To a considerable extent, experience has borne out these hopes. And yet, over the past two decades, there has been only a grudging, crisis-driven progress toward a truly resilient monetary union. Politically and financially, the euro area remains divided. The COVID-19 pandemic brings renewed tensions. With it comes a harsh reminder that standing still is simply not an option.
In this column, we review the progress toward completion of the European monetary union and highlight key gaps that remain. We do this by comparing the euro area and the US. Our focus is on risk sharing, banking and capital markets union, and labour mobility. In each case, the euro area remains significantly less developed than the US. As a result, shocks to euro area member states still cause larger economic and financial dislocations.
Kim Schoenholtz is Henry Kaufman Professor of the History of Financial Institutions and Markets and Director of the Center for Global Economy and Business