Funding European solidarity

The year 2018 marked at least two important anniversaries worth mentioning. First, 100 years ago, several successor states of the Habsburg empire were established in the Central, Eastern and Southeastern European (CESEE) region, including the First Republic of Austria. Too few people believed then that the new small state would be able to survive. Consequently, it took another reboot to learn that small open economies can provide a high quality of life and social security for their citizens. Unlike the interwar period, the development of the Second Republic of Austria was embedded in a process of international cooperation and European economic integration, which culminated in European Union (EU) membership. Democratic integration into something bigger turned out to be the more sustainable and more promising political and economic concept. Second, ten years ago, Lehman Brothers collapsed, and the global financial system was on the brink of falling apart. Today, we can truly say that all the efforts undertaken to prevent the worst from happening have succeeded in the end. Initially, coordinated monetary and fiscal expansion on a global scale was instrumental in avoiding an economic meltdown of the kind experienced during the Great Depression in the 1930s. Later, reforming the microand macroprudential regulatory frameworks helped to fix the financial system. Having established much larger capital and liquidity buffers as a result, banks have now significantly reduced the risks on their balance sheets. In Europe, new emergency funds, centralized banking supervision and resolution as well as more stringent procedures to deal with fiscal and macroeconomic imbalances addressed critical weaknesses of Economic and Monetary Union (EMU). Yet, there is no reason for complacency. High global debt, large global imbalances, a weaker postcrisis growth path, pending monetary policy normalization and remaining EMU imperfections pose challenges that will have to be tackled. To say nothing of the political risks exemplified by Brexit, recent trade tensions and populism that jeopardize the European project and multilateral cooperation in urgent global matters. Hence, there are many challenges ahead.