A best-case outcome for Euro crisis?     Print Email
Friday, 07 January 2011

Europe’s financial troubles will probably lead the EU and the eurozone to a stronger fiscal system – but only after a bumpy ride this year, according to Simon Johnson, a U.S- based economist who has been prescient about the crisis. In his view, the eurozone can weather an intensifying financial whirlwind at the cost of three crucial conditions:

  1. Greater fiscal integration for a core set of countries. Germany will end up underwriting more of the weak countries’ debts, but only with guarantees of more collective discipline.
  2. For the core countries, the European central bank (ECB) will receive greater authority to buy up government bonds as needed.  Speculators in these securities will be badly burned as necessary.
  3. The departure of one or more weaker countries from the eurozone.

“At the end of the day, the Europeans will save themselves, with the measures outlined above – only because there will be no other way to avoid wasting 60 years of political unification.  But this action won’t ‘save’ everyone; one or more countries will be forced out of full eurozone membership (although they will likely keep the euro as the means of exchange).  And the costs to everyone involved will be large,” Johnson writes in this cogent overview on his highly regarded website, The Baseline Scenario. U.S. readers should not react smugly to Europe’s hard choices, Johnson warms.: “Don’t smile as you read this, because this same logic points directly to a deep and morally disturbing crisis heading directly at the United States.”  

Kurt Moss is an Editorial Assistant at European Affairs.

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    In the current era of rapid demographic and technological change, and massive refugee flows, there has been much debate in European nations and in the US about immigration policies. One of the major points of contention is whether preferences should be given to would-be entrants on the basis of their high skills (merit-based immigration) or their family ties to individuals already residing in the country (family reunification).

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UMD Jean Monnet Research Project

Infrastructure Planning and Financing: Lessons from Europe and the United States

The University of Maryland has received a Jean Monnet grant from the EU to conduct a series of policy exchanges between Europe and the US on filling infrastructure needs and the utility of public/private partnerships as the financing mechanism. If interested in participating in or receiving more information about these exchanges, please contact Rye McKenzie (rmckenzi@umd.edu).

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New from the Bertelsmann Foundation

The Bertelsmann Foundation is an independent, nonpartisan and nonprofit think tank in Washington, DC with a transatlantic perspective on global challenges.

"Edge of a Precipice" by Nathan Crist

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