Given the incompleteness of EMU and the euro, European Policy Makers envisage its further

deepening. In how far is citizens trust in the governance behind EMU and the Euro an
important prerequisite for such a deepening?
How to complete a monetary union
The Eurozone  the core of its fragility: incomplete construction

How to complete it?  transfer of power (sovereignty)

Political Union
National  Supranational institutions
Monetary
from union

Monetary  political union

The lack of the “deep variable”:

“a strong national sense of common purpose and an intense feeling of belonging to the same nation”
(redirect to animal spirits-stories)

- to achieve full political union is missing

In the meantime, some progress is conceivable (small steps)

e.g. governance structure to reinforce monetary union and make it sustainable

goal: to indicate that more political union is preferable

Financial markets in monetary union (can lead to)  bad equilibrium: coordination failure

When market coordinate  agent’s behavior  bad equilibrium

// solving it: collective action

Central Banks  crisis situations (economy)

Governments  structurally union strength (politics)

(so, every institution has to fulfill its purpose)

Consolidation government budget and debts

 Collective action to solve budgetary problems

 Completing monetary union requires budgetary union

Europe need political union to sustain monetary union

Problem: lack of willingness (unwillingness) Europe remains a fragile construction

(Note that the language they use is related with sentiments)

An omitted “deep” variable

Taking west and east Germany unification “such a comprehensive political union came about as a result
of a strong national sense of common purpose and an intense feeling of belonging to the same nation”

(Note that the language they use is related with sentiments)

Monetary union and political union (endogenous variables)

driven by

Common purpose (deep variable)

(Trust is related with this feeling of belonging, the common purpose known as the deep variable)

Europe lacks of this deep variable or at least it is very week, that is why they started with monetary
union “without a sense of common purpose it is very doubtful that further progress will be made
towards political union”

The enlargement of the eurozone will weaken the sense of common purpose  deep variable even
weaker

Conclusion

A strong eurozone depends on political unification

Political unification will reduce asymmetric shocks, structural fragility, divergent economic movements

A sustainable unification could only be possible if a political unification is achieved

Full monetary union: budgetary unification // Incomplete m.u.: own independent budgetary policy 
fragile, unsustainable.
Eurozone: one common currency (central bank), absence of a budgetary union