SummaryWith troubles in the European Monetary Union (EMU) showing great persistence, the emergency measures and ad-hoc crisis management of European authorities has been subject to harsh criticism. The current fierce debate among economists and the broad public has given rise to two camps advocating fundamentally different approaches how to exit the sustained crisis. While according to the Integrationists′ view, the only viable way to get rid of pressing debt problems and to restore confidence in the Euro area lies in a common guarantee for national debt obligations, so-called Minimalists advocate a strict return to the cornerstones of the Maastricht Treaty, in particular strict compliance with the debt and deficit limits laid out by the Treaty as well as a credible application of the ‚no-bail-out‘ rule. However, in their pure form, both strategies do not serve for a timely and effective crisis management as they either require a level of supranational integration that - given the still prevalent Westphalian order - cannot be attained in the short run nor is it on the agenda of European policy, or essentially deny the significant flaws within the EMU architecture that failed to prevent current fiscal woes.The current crisis management of European authorities has followed neither of the two extremes but has taken a viable middle-of-the-road approach that resulted in useful and necessary repairs to the institutional architecture of the Euro area, most notably the establishment of the commonly guaranteed stability mechanisms EFSF and ESM as well as the first steps taken towards a European banking union. Hence, in contrast to most observers, we argue that the European authorities, by operating a prudent stepby- step approach, are on the right track towards solving the current crisis. As a result, European Central Bank could move back to its original approach of monetary policy.
Supervisory Arrangements, LOLR, and Crisis Management in a Single European Banking Market
