Heterogeneity stands in the way of eurozone consensus

THE reality of the euro area is that each member - including Greece - is an adherent for specific, partly opportunistic reasons which often vary from country to country. The differentiated, condominium-like structure of the euro explains why interest rate "spreads" between government bonds in the single-currency bloc are likely to persist during and after the European Central Bank's (ECB) 60 billion euros (S$91 billion) a month bond purchase programme aimed at restoring 2 per cent inflation.

Euro-area heterogeneity provides an underlying reason, too, why achieving consensus on thorny issues such as reform in Greece as a quid pro quo for debt relief is so difficult.

Euro countries need to invest time and resources to work together as a team to influence ECB monetary policies - and, indeed, policies in other areas too - towards a much more equitable distribution of the benefits and drawbacks of the single currency. The necessary changes include modifying the ECB's rules of engagement, in quantitative easing (QE) and elsewhere, to give it a more active role in influencing the business cycle. They extend to the more complex political process of revising the European treaties to adapt the framework of monetary union to members' aspirations. Such adjustments form the only way to allow sceptical countries outside the euro eventually to join and also, more pressingly, to keep the present membership intact.