INTERNATIONAL POLICY ANALYSIS The Future of European Economic and Monetary Union STUDY GROUP EUROPE September 2010 ࡯ The key to reform of European Economic and Monetary Union(EMU) lies in an intel­ligent balance between an autonomously implemented but collectively coordinated economic policy, on the one hand, and the need for some degree of centralization, on the other. ࡯ European economic government should be established, consisting of a preventive and a reactive branch. For preventive purposes, the member states should coordinate their decentralised economic policies, with the aim of avoiding macroeconomic imbalances. Only if this fails would reactive instruments – centrally controlled – kick in. ࡯ Notwithstanding the analyses of the Van Rompuy Task Force, the European Commis­sion and the German government, a lack of budgetary discipline is not the decisive cause of the current crisis in the Eurozone. ࡯ A return of European economic policy to the goals of the so-called»Magic Square« (Magisches Viereck) is long overdue. Furthermore, workers should get their proper share of Germany’s export success, reversing the pursuit of lower unit wage costs. There should also be a number of institutional innovations, such as the establishment of a Community Budget Committee of national parliaments.