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The Euro on the Brink:
'Multiple' Crises and Complex Solutions
Macro Economy Proceedings, Issue No. 7, January 2012 (PDF: 440kb)
The Euro on the Brink: 'Multiple' Crises and Complex Solutions
PAOLA SUBACCHI and STEPHEN PICKFORD
Europe’s sovereign debt crisis has exposed the deficiencies in the governance of the European Monetary Union (EMU) and shown the limits of its framework of policy cooperation. Most of all, the crisis has threatened the political fundamentals of the currency union and greater integration in Europe. This paper discusses the outlook for the euro area, in particular the euro periphery, and assesses the vulnerabilities and stress points. It argues that the factors underlying the current crisis predate the 2007-08 global financial crisis and are a mix of structural problems in some member states and faults in the design of the EMU framework. It identifies the short-term tasks for the countries in the euro area: to normalise the access of banks to market funding; to convince markets that their public debt is on a sustainable track; and to improve their external payments position. The longer term challenges are to improve competitiveness, restore growth, and rebalance the intra-EMU growth pattern. The paper concludes by assessing the chances of the euro to survive in its present form if the necessary structural measures are not implemented.
Paola Subacchi is Research Director, International Economics Programme, Chatham House.
Stephen Pickford is a former Managing Director in HM Treasury and is currently an Associate Fellow in the International Economics Programme at Chatham House.
