ECB executive board member González-Páramo said that the key lesson from the crisis is that the euro area needs to compensate for "missing institutions" by establishing a much stronger economic and financial union.
A central area where the absence of shock-absorbing institutions has been felt is via intra-euro area current account imbalances. These imbalances existed for many years prior to the crisis, but were largely ignored as theory told us that they could always be financed through cross-border financial flows. However, it is now clear that current account imbalances – while not being the only proximate causes of the crisis – are not benign and imply vulnerabilities which can be transmitted to the euro area as a whole.
The euro area has learned that the original design of EMU was incomplete, and is now working hard to complete it. For various reasons, the euro area is not in a position to adopt in the near term the institutions of a political federation. This means that it has to take a different road to increase overall stability and – in true European tradition – a sui generis approach is being developed that focuses on preventing imbalances and improving collective management of crisis.
It is clear that this approach implies a loss of sovereignty. The crisis has proved that the euro area is a political entity which is not self-adjusting; it needs to be actively governed, and this cannot happen without Member States sharing more powers with each other. In other words, there has been a belated recognition that monetary union entails political union. This shift has profound implications for the involvement of all levels of governments in the European project: EU institutions, national governments, national parliaments, and even local governments are all required to participate in the common governance of the euro area. Managing this process represents the next great challenge of European integration.
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