The progressive Rift of the Eurozone: Risks and Remedies

Due to rigid rules, incomplete institutions and concentration on short-run fiscal discipline, economic and institutional diversity and insufficient reforms caused the progressive segmentation of the Eurozone. Insufficient integration process is due to lack of trust among member countries and the need to keep a hard budget constraint of national budgets to avoid uncontrolled inflationary pressure and moral hazard. Although understandable in the short run, this situation is causing serious economic and social costs and damages to the development of vulnerable countries. The paper enquires possible solutions to this dangerous stalemate, that could also provide useful suggestions for other countries.