This month, European government leaders will decide on, among other things, a Eurozone Budget plan. The reason behind the planned reforms is that in theory mutual risk-sharing between Eurozone countries would offer a solution if a Eurozone country faces negative economic shocks.
But is it really good to share more risks? In an opinion article in Nederlands Dagblad, Ivo Arnold, Professor of Monetary Economics at Erasmus School of Economics, discusses the question which risks we do and which we do not want to share in Europe.
‘At first sight, stabilising economic shocks seems a good thing, but there are shocks of all kinds and sizes and not every one of them justifies European solidarity,’ according to Arnold. ‘A real shock comes unexpectedly and is external, like the migration crisis. A political landslide is, however, another matter. If you share the consequences of bad policy, you weaken the incentive to improve such a policy.’
In the opinion article Arnold also discusses the size of the budget, that the plan is not a solution to the structural economic problems in countries like Italy and Greece, and that it would pose a direct threat to the stability of the financial system.
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The opinion article was published in Nederlands Dagblad, 4 December 2018. The entire article can be found here (in Dutch).