The article constitutes a political economy exercise in trying to understand the crisis of the euro area and draw lessons from it. The bursting of the biggest bubble in the Western financial system for decades has led to a big crisis in a currency union without a state, which is the euro area now occupying centre stage in the European political system. The culprits are many, but there have also been colossal failures in markets and institutions. A new modus vivendi between democracies and financial markets needs to be found. Banking and sovereign debt crises are closely intertwined and they both cross national borders. Yet European solutions have proved difficult to reach because of economic divergence and rising populism. The distribution of pain is hardly an easy task, while implementation has been rendered more difficult in an increasingly intergovernmental EU system. There are deep underlying differences over the overall economic strategy. Yet a lively debate has developed as manifestation of an emerging European public forum. The stakes are high. Will the crisis act as a powerful catalyst for further integration in Europe? The alternative would be disintegration at a high cost. Crises provide opportunities for change. This is arguably the end of an era. The article ends with a rallying cry for Europe the broad minded.
We need to revise our ways of managing European (and global) interdependence, while deciding how far we want to go in trying to defend common interests and values in a world where size still matters a great deal.
Europeans need to rethink their model of economic development, redefining the relationship between democracies and financial markets, adopting more environmentally friendly policies and more socially inclusive, while placing more emphasis on qualitative growth.
European integration needs to turn again into a positive sum game for creditors and debtors, surplus and deficit countries by looking for new ways of distributing the burden of adjustment, recognizing the political boundaries of solidarity with conditionality, and strengthening common institutions.