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Monetary union required political union.Of course, Schaeuble and Varoufakis had different ideas regarding the ends that political union would serve. Schaeuble saw political union as a means to impose strong fiscal discipline on member states from the center, tying their hands and preventing "irresponsible" economic policies. Varoufakis thought political union would relax creditors' stranglehold on his economy and create room for progressive politics across Europe.There is also an alternative, much less ambitious view, according to which neither fiscal nor political union is needed. What needs to be done instead is to unlink private finance from public finance, insulating each from the malfeasance of the other.With this separation, private finance can be fully integrated at the European level, while public finance is left to individual member states. Martin Sandbu of the Financial Times has been a strong proponent of the view that a workable monetary and financial union does not require fiscal integration.So the risk remains that a severe enough financial shock in the EU will affect all other borrowers in the same country in a self-fulfilling manner. Pretending that we can separate private from public finance may exacerbate, rather than moderate, financial boom-and-bust cycles.
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