The Eurozone: Challenges and Structural Problems
The challenges faced by the Economic and Monetary Union (EMU) countries are far more complex than the current sole focus on sovereign debt suggests. Sovereign debt has exploded of late in the wake of the economic slump in 2008–09 and as a result of the high costs of the banking sector bailouts that became necessary in most cases after the property crises. However, in some EMU countries there is, additionally, a structural growth weakness, brought about by poor competitiveness. Whether and how well the countries can master the challenges depends on a number of internal and external factors. The external environment is still supportive at present: global interest rates are low and global export demand is bolstering growth and thus the capacity to service the debt. Yet, many internal factors such as a political consensus in favour of wide-ranging economic reforms, the structure of the debt, the quality of the financing and, above all, the economic policy lessons learned from the crisis (concrete form of the austerity measures and reforms) diverge considerably from country to country. As a consequence of these differences, a clear EU policy response going beyond liquidity facilities and financial support remains outstanding. The current problems have to be addressed and solved both at the member state as well as the EU level in order for the eurozone to be a long-term success. In other words, collective action from Brussels can only work with members’ policy making, but can never be a substitute for it.