Philippe MARTIN and Jean PISANI FERRY submit report to the French and German governements: How to reconcile risk sharing and market discipline in the euro area

Philippe MARTIN, Professor of Economics at the Department since 2009 and former Chair from 2009 to 2013, and Jean PISANI FERRY, Professor of Economics at the Department and at the Hertie School of Governance, have submitted an important report  along with 12 other French and German economists calling for reform of the Euro Zone.

In late September 2017 the same 14 French and German economists had already signed a tribune that was published in two major daily newspapers : Le Monde and FAZ (link to news). They collectively called for an enduring reinforcement of the European construction : «  without consequential reforms, the Euro zone remains fragile. If nothing is undertaken to bolster it, another major crisis is to be feared. »

The 30-page report was submitted simultaneously to the French and German governments, as well as the EU, on Wednesday morning.  The economists present a series of proposals in order to achieve a thorough reform of the functioning of the euro zone.

On this occasion SciencesPo’s Departement of Economics organised a well-attended press conference with both Professors Martin and Pisani Ferry as well as Agnès Bénassy-Quéré, Professor at the University of Paris I/Paris School of Economics, and Nicolas Véron, Senior Fellow, Bruegel and Peterson Institute for International Economics.

The report pinpoints six areas for reform :

  • First, breaking the vicious circle between banks and sovereigns through the coordinated introduction of sovereign concentration charges for banks and a common deposit insurance
  • Second, replacing the current system of fiscal rules focused on the ‘structural deficit’ by a simple expenditure rule guided by a long-term debt reduction target
  • Third, creating the economic, legal and institutional underpinnings for orderly sovereign-debt restructuring of countries whose solvency cannot be restored through conditional crisis lending
  • Fourth, creating a euro area fund, financed by national contributions, that helps participating member countries absorb large economic disruptions.
  • Fifth, an initiative to create a synthetic euro area safe asset that would offer investors an alternative to national sovereign bonds.
  • Sixth, reforming the euro area institutional architecture.

They underscore the fact that their proposals should be considered a « package that largely requires joint implementation ».

To learn more, you may read the Vox EU column « How to reconcile risk sharing and market discipline in the euro area »  (link)
… or, in French via Telos, « Réconcilier solidarité et discipline de marché dans la zone euro » (link)

Interview with Philippe MARTIN (link to video)

Media coverage :
Financial Times, « A Franco-German consensus on the euro? » by Martin Sandbu (link to article via SciencesPo FT subscription)
Les Échos, « Des économistes français et allemands proposent une réforme de la zone euro », by Catherine Chatignou and Thibaut Madelin (link to article)
… and  “Déficit, restructuration des dettes, garantie des dépôts : décryptage des propositions des économistes franco-allemands », by Catherine Chatignou (link to article)
Le Monde, « De nouvelles propositions pour renforcer la zone euro. Quatorze économistes français et allemands tentent de rapprocher les points de vue de Berlin et de Paris. », by Marie Charrel (link to article)
Le Figaro, « Zone euro : "solidarité" et "discipline", réclament des économistes » (link to article)
RFI, « Des économistes allemands et français imaginent ensemble le futur de la zone euro », by Dominique Baillard (link to radio podcast)
La Tribune, « Zone euro : les recommandations des économistes allemands et français », by Grégoire Normand (link to article)
La Croix, "Philippe Martin  : « La volonté politique est réelle au plus haut niveau », interview by Marie Dancer