Spain is in the eye of the euro crisis storm as the most vulnerable country supposedly ‘too big to fail’. This paper looks at that crisis from the Spanish perspective, maps out the future scenarios it faces and sets a practical roadmap that can help Europe overcome the current crisis.
The paper argues that the origins of the crisis lie in the defective design of a monetary union born in haste without the proper political, monetary or fiscal institutions to support it. The system therefore needs a thorough restructuring aimed at completing the EMU with fiscal, banking and political union. Partial solutions will only aggravate the crisis.
Spain faces four likely scenarios: “exit”, “intervention”, “muddling through” and “economic Federation”. Although these scenarios are dynamic and interact with each other, without decisive action at the European level, full political ‘intervention’ is the most probable. This will not improve Spain’s growth and stability perspectives, and also risks severely undermining the political system and giving rise to popular euroscepticism.
If the crisis is to be overcome, both at the national and European level, action needs to be taken regarding trust, growth and effective and legitimate institutions at the European level. Only by bridging the trust, economic and institutional deficits can Spain walk away from intervention and Europe from disintegration.
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.