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Preventing the Next Eurozone Crisis Starts Now

PARIS – European leaders have devoted scant attention to the future of the eurozone since July 2012, when Mario Draghi, the European Central Bank’s president, famously committed to do “whatever it takes” to save the common currency. For more than four years, they have essentially subcontracted the eurozone’s stability and integrity to the central bankers. But, while the ECB has performed the job skillfully, this quiet, convenient arrangement is coming to an end, because no central bank can solve political or constitutional conundrums. Europe’s heads of state and government would be wise to start over and consider options for the eurozone’s future, rather than letting circumstances decide for them.

So far, Europe’s leaders have had little appetite for such a discussion. In June 2015, they only paid lip service to a report on the euro’s future by the presidents of the various European institutions. A few weeks later, the issue briefly returned to the agenda when eurozone leaders spent a long late-July night arguing about whether to kick out Greece; but their stated intention to follow up and address underlying problems was short-lived. Finally, plans to respond to the Brexit shock by strengthening the eurozone were quickly ditched, owing to fear that reform would prove too divisive.

The issue, however, has not gone away. Although the monetary anesthetics administered by the ECB have reduced market tensions, nervousness has reemerged in the run-up to the Italian constitutional referendum on December 4. By end-November spreads between Italian and German ten-year bunds reached 200 basis points, a level not seen since 2014.

The worrying state of several Italian banks is one reason for the mounting concern. Brexit, and the election of a US president who advocates Americanism instead of globalism and dismisses the EU, adds the risk that voters, rather than markets, will call into question European monetary integration. Anti-euro political parties are on the rise in all major eurozone countries except Spain. In Italy, they may well command a majority.