With Greece’s "restricted default" and the contribution of billions of euros from Western Europe to keep the nation afloat, combined with increasing bond yields for many other Eurozone countries, there has been concern that the Economic and Monetary Union may not be able to survive. As the crisis spread there were even suggestions that France and Germany may not have been willing to provide a second bailout to the beleaguered Greek economy — an act which would surely have caused the sovereign governments of Europe to rethink their involvement in the euro.
Allowing the Greek economy to collapse was never an option for those participating in the Eurozone, and despite the political posturing, it has always remained about as likely as the U.S. government failing to raise its debt ceiling. The more interesting question which Frankfurt and Brussels must now address is what this experience means for the future of the European Central Bank.
Pessimism about Europe’s future has historical precedent. Ever since the fateful phrase “an ever closer union” in the 1958 Treaty of Rome, the European project has moved relentlessly forward with no fixed goal in mind. In the past, periods of economic growth were accompanied by periods of accelerated integration. The recent economic instability will probably precipitate a protracted period of stagnation.
Yet, this could be the moment when the EU breaks the traditional pattern. The events of the Greek monetary crisis could stimulate further integration to rectify the weaknesses exposed in the Eurozone. The concept of an integrated economy was not responsible for the continent’s current fiscal difficulties; these problems emerged because integration has not yet gone far enough. The easiest solution to prevent this type of crisis from occurring again is not to retreat from integration, but to keep moving it forward.
The Eurozone’s main problem has been its lack of strong institutions and its inability to control economic policy across members. While the Eurozone states have shared one currency, they have not shared one economy. By increasing the power of the ECB, European governments can better control the economy. Unlike existing financial institutions such as the IMF, the ECB has no mechanism to supply funds to struggling members, leading to last week’s "crisis summit." Additionally, there is no "euro bond" to support weaker members. The collapse of the Greek economy was caused by a lack of confidence in their government’s ability to meet its financial obligations. Creating a bond for the entire Eurozone would allow the ECB to borrow from private sectors and, subsequently, aid members with financial difficulties.
The institutional response to this crisis will not be a retreat from integration, but the movement of the common market towards a bold new frontier.
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