Monetary union and current account imbalances

Current account imbalances can indeed exist and be compatible with monetary union when they are ＂good.＂ However, harmful imbalances lead to distortions in the allocation of resources, and their persistence in economies that are catching up makes them more vulnerable to asymmetric shocks. The onset of the crisis also revealed the limitations of an incomplete monetary union, which further complicated crisis management in the eurozone. The Treaty on Stability, Cooperation and Governance (TSCG), which most (if not all) eurozone countries have signed and ratified, represents an unprecedented sharing of fiscal sovereignty among member states. If we add to this treaty the European Support Fund, which can mobilize nearly 1 trillion, the banking union project, and the ECB’s new pragmatic attitude, the eurozone and, consequently, Europe now have a ＂toolbox＂ that seems to have convinced the markets in recent months that the single currency is in the EU’s best interest and, therefore, its symbol. But when will fiscal federalism come into play?