Everyone is on tenterhooks in the countdown to next week’s critical European summit. The outline of the grand solution being pursued is becoming clearer as a growing number of officials take to the air waves. What is emerging seems to be a pretty good approach, provided – and this is vital – Europe agrees on the details while avoiding some highly pernicious traps.
To be clear, it is now the region’s moment of truth. To avoid a very costly and disorderly fragmentation, Europe may well be embarking on the road to embracing a smaller, stronger and less imperfect monetary union in the future. Over the next few days, these leaders need to unite on ways to enhance the institutional underpinnings of the union, to reduce the risks imposed by the banking sector, to delineate clearly between solvency and liquidity cases, and to stop the latter from tipping into insolvency. Should they fail, the probability of a disorderly collapse of the eurozone would increase materially.
If they again succumb to shortcuts and partial answers, history will mark this as an enormous failure to deliver on one of the last, if not the final, opportunity to save a union that is key to the region’s wellbeing, as well as that of the global economy. Continue reading »