This demands a fiscal capacity over and above national budgets that would improve the ability to provide automatic stabilisation and allow the European level to expand or tighten fiscal policy in line with the economic cycle.
This budget would have its own revenues (for instance a common financial transaction tax, as well as a small portion of a harmonised corporate tax) and would provide for borrowing on that basis.
A eurozone-level budget should not and need not come at the expense of fiscal discipline at the national level. On the contrary: this should be strengthened by establishing a legal framework for orderly and legitimate sovereign debt restructurings, should they become necessary as a last resort.
This would prevent both inappropriate use of crisis lending and self-defeating bouts of austerity when countries face unsustainable debts. At the same time, the European stability mechanism (ESM) should be brought under community law and transformed into a proper European Monetary Fund.
These changes would create a eurozone architecture that increasingly relies on common institutions. This need not occur at the expense of the eurozone’s ability to accommodate different national situations and circumstances. To make its institutions work, however, Europe will need to address its democratic deficit as well as its executive one.
This means that new executive powers at the eurozone level need to be complemented by governance reforms leading to stronger accountability – for example, to the creation of a eurozone grouping within the European parliament. A “euro commissioner” could embody this stronger eurozone focusing on fiscal policy but also on growth, investment and job creation.
Strengthening the euro is not only about the eurozone. It cannot be isolated from a broader rethinking of the EU, not least because we need to be able to answer the key question: what about the other member states? A stronger eurozone should be the core of a deepened EU.