EU leaders must change gear to stop the eurozone’s sovereign debt crisis that has hit Greece and Ireland and now threatens Portugal, Spain and other countries. If European leaders do not make the eurozone’s governance storm-proof, the consequences could be catastrophic not only for the euro but also for Europe’s standing as a global player.
That is the conclusion of Beyond Maastricht: A new deal for the eurozone, a new paper byThomas Klau and François Godement with José Ignacio Torreblanca, published on 16th December 2010 by the European Council on Foreign Relations.
The crisis year 2010 has revealed that the EU’s governance for the eurozone was designed only for fair weather. European leaders must move beyond their third attempt to make the Maastricht framework function and seize the crisis as an opportunity to fundamentally redesign their economic union. For this to happen, Europe needs strong, forward-looking leadership from its strongest economy: Germany.
The authors argue that to prevent a future of dangerous instability, weak growth and rising national resentment across Europe, the EU needs to agree a new deal on economic union as part of “a new grand bargain with Germany.” This could entail:
- Eurobonds, proving to the markets that the eurozone is politically united
- A European version of the USA’s Troubled Asset Relief Programme (TARP) to buy assets from financial institutions and allay investor concerns about national sovereign debt
- An expanded Euro-budget, which would be strong and flexible enough to foster cohesion and help stabilise the eurozone economy
A failure to secure the long-term future of the single currency would have dramatic economic and political consequences inside the EU. It would also make Europe irrelevant on the world stage at the very moment when the Lisbon Treaty should give the EU the means to coordinate its foreign policy more effectively
The European Council on Foreign Relations does not take collective positions. This paper, like all publications of the European Council on Foreign Relations, represents only the views of its authors.