No exit from low interest rates in the euro zone without an element of federalism

The euro zone is becoming increasingly heterogeneous. This is normal : in a currency area, several mechanisms (productive specialisation, single monetary policy) lead countries’ situations to diverge. Some federalism is therefore required to prevent a break-up of the euro zone. We define federalism as a mechanism that transfers income from the richest to the poorest countries to prevent living standards from diverging. In the absence of fiscal federalism, monetary policy has played this role since the arrival of Mario Draghi at the ECB . The very low interest rates have performed this income transfer from the lending (rich) countries (Germany, the Netherlands) to the borrowing (poor) countries (the peripheral euro-zone countries), thus playing the same role as a federal euro-zone budget. Removing this mechanism would again place the euro at risk of breaking up. This suggests that the ECB will only be able to exit its policy of very low interest rates once another form of federalism has been set up. The Green Deal proposed by the European Commission - the investment funds that will be s e t up (Sustainable Europe Investment Plan, Just Transition Fund) to finance the energy transition and the adjustments (employment and skills) that it entails - are a form of a European budget . The risk is that it will be too small to arrest the divergence of the euro-zone countries’ paths.