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The Mutating Euro Area Crisis

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The Mutating Euro Area Crisis

Is the Balance Between “Sceptics” and “Advocates” Shifting?

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The euro crisis is slowly abating, but its traumatic wake-up call has been a powerful catalyst for change.

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Editorial Rating

7

Recommendation

Though economist Francesco Paolo Mongelli is an insider at the European Central Bank, his views on the euro are objective and evenhanded. He offers an honest, revealing account of the euro zone’s near meltdown, the causes of the sovereign debt crisis and the remedial efforts under way. While he’s clearly pitching for the euro’s continuation, he doesn’t shy away from addressing the possible adverse outcomes of austerity and weakened economies, and he notes that euro skepticism can influence views about the viability of European Monetary Union. Astute readers will decide for themselves whether he’s right and whether the worst of the euro crisis is over. getAbstract recommends this insightful paper to academics, bankers, policy makers and market participants who want a clear overview and a thoughtful assessment of what might lie ahead.

Summary

The Multifaceted Euro Crisis

The economic problems and political dramas surrounding European sovereign debt have obscured the vigor with which the European Union (EU) has reacted to its debt crisis. The EU’s response has ranged from better governance and economic reforms to the creation of new European institutions. The factors involved in the crisis include financial imbalances, a drop in public support and the flawed design of European Monetary Union (EMU). These elements form a “negative feedback loop.” The good news is that the crisis was so severe that it cleared a path to four much-needed unions – “banking, economic, fiscal and political” – in the euro zone, although each will take time to unfold. Turning around countries, which the crisis brought to the brink of bankruptcy, will be a long haul.

The most significant challenge for the EU will be to move from short-term emergency measures to reaching long-term goals. Member nations will have to exert a great deal of effort – particularly in trying to win their populations’ consensus for unpalatable measures such as debt reduction, which will inevitably undermine living standards. In retrospect, the EU launched ...

About the Author

Francesco Paolo Mongelli is a senior adviser in monetary policy at the European Central Bank and an honorary professor at the Goethe University Frankfurt.

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