Policies and their Frames

Policies in the Eurozone are tailored to the implementation of the common rules as devised in the Stability and Growth Pact (SGP). The SGP was based on a short-run set of conduct rules and practices, motivated by the need to make all member countries converge to a financially sustainable situation in an institutionally incomplete context. The alternative possibility of proceeding through intercountry transfers was ruled out to avoid moral hazard and the fundamental lack of mutual trust and even fiscal equalisation seem to be far away. Unfortunately, a deep problem undermines the sustainability of the Eurozone: in a regional integration made of partially sovereign economies in different economic conditions and with diverse national institutions, there is an urgent need for institutional and structural, long-term reforms and policies to foster the convergence of the real economies and financial situations. It is only on the bases of these policies that short-term stabilisation policies can be sustainable and fruitful.