Monetary union road to EU prosperity

There is a common misconception that the euro area is a monetary union without a political union. This reflects a deep misunderstanding of what monetary union means. Monetary union is possible only because of the substantial integration already achieved among European Union countries - and sharing a single currency deepens that integration.

Yet it is also clear that our monetary union is still incomplete. This was the diagnosis offered two years ago by the so-called "Four Presidents" (the European council president in close collaboration with the presidents of the European Commission, the European Central Bank and the Eurogroup). And though important progress has been made in some areas, unfinished business remains in others.

In other political unions, cohesion is maintained through a strong common identity, but often also through permanent fiscal transfers between richer and poorer regions that even out incomes ex post. In the eurozone, such one-way transfers between countries are not foreseen (transfers do exist as part of the EU's cohesion policy, but are limited in size and are primarily designed to support the "catching-up" process in lower income countries or regions). This means that we need a different approach to ensure that each country is permanently better off inside the eurozone.

This implies two main things. First, we have to create the conditions for all countries to thrive independently. All members need to be able to exploit comparative advantages within the "Single Market", attract capital and generate jobs. And they need to have enough flexibility to respond quickly to short-term shocks. This comes down to structural reforms that spur competition, reduce unnecessary red tape and make labor markets more adaptable.

Until now, whether or not to carry out such reforms has largely been a national prerogative. But in a union such as the EU they are a clear common interest. Countries in the eurozone depend on one another for growth. More fundamentally, if a lack of structural reforms leads to permanent divergence within the monetary union, this raises the specter of exit - from which all members ultimately suffer.

In the eurozone, stability and prosperity anywhere depend on countries thriving everywhere. So there is a strong case for sharing more sovereignty in this area - for building a genuine economic union. This means more than beefing up existing procedures. It means governing together: shifting from coordination to common decision-making, and from rules to institutions.