PARIS – For three years, the euro crisis has threatened not only to unravel the eurozone, but to bring down the entire European Union with it. Although the pressure from financial markets has moderated, for now, a long-term resolution to the crisis remains an existential priority for the EU.
In today’s highly competitive global economy, European countries’ relatively small size, aging populations, and excessive indebtedness, combined with a lack of energy resources and insufficient investment in research and development, mean that their high living standards and generous social-welfare states are in jeopardy. Individually, they cannot compete with emerging markets; they need a strong EU to face the challenges posed by globalization.
But the eurozone’s architecture – in which monetary policy is centralized, but budgetary and economic policies are left up to individual governments – is not viable in the long term. Although Europe’s leaders have made some progress on institutional reform, the measures taken so far will not lead to real convergence of economic and budgetary policies, or to genuine economic union. As a result, they will fail to reassure financial markets.
Given that treaty change is politically unfeasible, establishing a “two-speed Europe” – in which a core group of countries pursues deeper integration more quickly than the rest – is the EU’s best option for reaching the level of cooperation needed to escape the crisis intact. This can be accomplished in two ways.