Are the Barbarians at the EU Gates?

The Greek crisis poses an almost existential challenge – and has required such huge sums – because it poses the key question of European governance: can a member state of the EU be allowed to fail? As long as EU leaders cannot answer that question, financial markets will continue to harbor doubts about the euro’s long-term stability.

BRUSSELS – The euro area confronts a fundamental crisis that attacks on financial speculators will do nothing to resolve. The European Council of Ministers had to promise hundreds of billions of euros to its financially imperiled member countries, even though the European economy as a whole is not really in crisis. On the contrary, most surveys and hard economic indicators point to a strong upswing, with the one country that is in really serious trouble, Greece, representing only 3% of the area’s GDP.

Nevertheless, the crisis poses an almost existential challenge to the European Union – and has required such huge sums – because it directly implicates the key underlying principle of European governance: the nature of the state. The case of Greece has raised the simple but profound question: can a member state of the EU be allowed to fail?

One view is that the state is sacrosanct: the EU has to intervene and help any errant member to get back on its feet. But this view assumes that all member states adhere to the Union’s underlying economic values of fiscal prudence and market reform. Problems could arise only because of unanticipated shocks, temporary local political difficulties, and – the favorite culprit – irrational markets.

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