The opportunity for euro-area reform is closing
The rift among northern and southern euro-area members is widening, limiting the scope to create stabilisation measures
In the EU, macroeconomic governance reform is focusing around the creation of a euro-area budget and a European Deposit Insurance Scheme (EDIS) -- the final pillar for the completion of the European Banking Union (EBU) which would provide stronger insurance coverage for member states. However, northern countries are reluctant to pay for crisis-prone ones in the south, so compromise on detail could take years while the initiatives will have limited scope in responding to crises.
Our judgement
In its Spring outlook, the European Commission revised its euro-area growth forecast from 1.9% to 1.3%, while stating that downside risks are ''prominent''. Such risks include downward trends in industrial production owing to issues such as global trade uncertainty and the prospect of no-deal Brexit. Whether such uncertainty will convert a downturn into a recession is too early to say but nonetheless raises concerns regarding the euro-area's resilience in coping with a future crisis.
See EU: Euro-area governance will be compromised - June 18, 2019