AN ECONOMICS CONFERENCE in Galway has been told that the current crisis in the Eurozone is based on “a series of structural design flaws” in the very design of the European monetary union, which would require reform if the monetary union will survive.

Tom McDonnell from the independent economic think-tank TASC said resolving the crisis would need a “package of complementary policy changes to reform the currency union’s deeply flawed institutional architecture”.

The European Central Bank’s current status, where it does not act as a ‘lender of last resort’ in a similar method to other central banks, was particularly criticised.

“A Lender of Last Resort would help ensure that temporary liquidity problems do not degenerate into a solvency crisis,” McDonnell said.

He said the current version of the treaty establishing the ESM, the new permanent bailout fund for the eurozone, would also not function as such a lender – and said it was “incapable of ending the crisis”.

“What I am proposing is a guaranteed yet conditional [lender of last resort] which can reconcile moral hazard concerns with the need to protect sovereign borrowers from the kind of solvency issues we have witnessed since the onset of the economic crisis,” he said.

McDonnell also called for a full banking union within the eurozone, saying a deposit insurance corporation should be established to fill this gap.

This would act as a central supervisor and regular of Europe’s banks, and would have the authority to simply close down any banks which could no longer meet their debts.

“Fundamental reforms are required to put the Eurozone project back on track,” he said. “Simply tinkering at the policy edges will not resolve what is a system crisis.”

McDonnell was speaking at the Dublin Economics Workshop, which also heard from the IMF’s resident representative in Ireland, Peter Breuer.

RTÉ News quoted Breuer as saying reforms such as a single banking and fiscal union – essentially a common European economic government – would help to renew confidence in the euro currency.

Though this would mean tighter control of public finances in individual member states, it would also mean countries would share the cost of fixing their banks – something which could prove appealing for Ireland if it was applied retroactively.

Read: Van Rompuy: Ireland could get deal on bank debts before bank supervisor is set up