The paradox of European economic governance : towards monetary and fiscal union?

The most severe economic downturn since the Great Depression has revealed the underlying problems with the European economic governance that stem from the unusual setup of the Economic and Monetary Union. Although the monetary policies are controlled by the European Central Bank (ECB), the fiscal policies have been in the control of individual Member States, thus, there is no economic union to complement the policies of ECB, which leads to suboptimal outcomes. As it has become clear that cooperation and further integration is needed to counteract the negative externalities, the solutions being developed fall short of guaranteeing the efficient functioning of EMU. The thesis will show that despite the overall agreement that more centralised economic governance is needed, the host of reforms that have been introduced have not delivered not led to a closer union. Paradoxically, rather than taking the EU closer to an economic and political union the interplay of Franco-German duo have weakened the EU institutions, and shifted economic governance towards intergovernmentalism.