Skip to main content
marzinotto6_Daniel Roland_AFP_Getty Images_european central bank Daniel Roland/AFP/Getty Images

The Eurozone is Still Vulnerable

The eurozone remains fragile and uninsured against the risk of another crisis, not least because it is still vulnerable to asymmetric boom-and-bust cycles. Although reforms that were implemented in response to the last crisis have improved the situation at the aggregate level, efforts to achieve fiscal convergence have failed.

BRUSSELS – Despite recently experiencing an overall economic uptick, the eurozone remains fragile and uninsured against the risk of another crisis. And a major reason is that it is still vulnerable to asymmetric boom-and-bust cycles.

Simply put, while all eurozone members can benefit during good times, some suffer far more than others during busts. This means that whenever the next crisis hits, safety-conscious investors will flee from fiscally weak countries toward fiscally strong ones that have a proven track record of generating economic growth.

When the economic calculus reverses, we can expect to experience a sense of déjà vu. Each country’s gain will entail another country’s loss, which will undermine inter-eurozone cooperation and fuel political tensions. The effects will likely reverberate through each country’s domestic politics, strengthening forces that favor disintegration.

We hope you're enjoying Project Syndicate.

To continue reading, subscribe now.

Subscribe

Get unlimited access to PS premium content, including in-depth commentaries, book reviews, exclusive interviews, On Point, the Big Picture, the PS Archive, and our annual year-ahead magazine.

https://prosyn.org/Lqlh5Bm;

Cookies and Privacy

We use cookies to improve your experience on our website. To find out more, read our updated Cookie policy, Privacy policy and Terms & Conditions