0

The EU’s Band-Aid on a Bullet Hole

BRUSSELS – Is the euro crisis any closer to a resolution? Europe’s leaders have promised to devise by the end of this month a comprehensive package not only to end the crisis, but also to preserve the euro’s stability. Unfortunately, they are unlikely to succeed, because most of the elements of the package revealed so far address the symptoms of the crisis, not its underlying causes.

German Chancellor Angela Merkel likes to emphasize, rightly, that one should not speak of a “euro crisis,” but of a “debt crisis.” If she had added that this is a crisis of both sovereign and bank debt, she would have been even more right.

But an immediate corollary of this diagnosis is that dealing with this crisis requires finding a solution to the debt problem – that is, the problem of over-indebted sovereigns and insolvent banks. Unfortunately, nothing is being done on either of these crucial fronts.

The new complex mechanisms for economic-policy coordination that dominate the European Union’s agenda might be useful in pushing eurozone member countries to adopt more sensible policies to increase their economies’ competitiveness and strengthen their fiscal positions. But one should remember that, until recently, Ireland and to some extent Spain were held up as shining examples of competitive economies that created a record number of jobs.