ABSTRACT

Economic and monetary union (EMU) started with serious flaws. Those flaws had been carefully diagnosed and yet no attempts were made to deal with them.1 As an original experiment, it would have been extraordinary that its design be perfect from the start.2 The fact that these flaws came together to generate the Euro-area crisis is an indictment of the denial that has characterized the first decade of the monetary union. The costs of this denial have been enormous, including lost incomes, unemployment, bankruptcies, and dangerous political under-currents. Building on Begg et al. (1998), this article revisits three main flaws: the

lack of planning to deal with financial instability, the lack of transparency

of the ECB, and the poor articulation between monetary policy and national fiscal policies. As we take up these issues, we ask two questions: (i) what did we miss? For instance, we warned that the ECB might be ill-prepared to face a financial crisis, but our examples (admittedly in 1998) were backward looking pointing to the SouthEast Asian crisis as an example; (ii) what progress has been made in the areas that we had indicated as yet incomplete? Is this progress satisfactory?