Why Has Euro Crisis Management Been So Hard?
Essay in the forthcoming ebook from the European University Institute, Institutions and the Crisis, edited by Franklin Allen, Elena Carletti, and Mitu Gulati.
The euro crisis began in 2010 as a fiscal crisis in Greece and a banking crisis in Ireland, two small countries which together made up about 4 percent of euro area GDP. IMF-EU programs backed by the European Central Bank (ECB) were meant to quickly address the underlying fiscal and financial problems and prevent contagion. Instead, the crisis spun out of control. By early 2011, it had reached Portugal; by the third quarter of 2011, Italy and Spain. By 2012, the entire euro area was in recession. Even after it began to recover, in 2014, aftershocks of the crisis continued to haunt the euro area. After a government opposing EU- and IMF- sponsored adjustment came to power, Greece almost exited the euro in 2015. Most recently, a government coalition crystalizing anti-EU sentiment in Italy poses a serious, perhaps existential, challenge to the euro and the European Union. With similarly polarized views in other countries, it looks like the euro crisis may be perpetuating itself indefinitely (or until the euro collapses).