Who pays the ferryman? The story of the euro area from recession to political crisis to the revision of the institutional structure

The debt crisis has brought to the surface key weaknesses in the institutional structure of the EU. The public securities markets of the individual countries have turned out to be potentially just as vulnerable to speculative attacks as fixed exchange rates. It has emerged as an unmanageable problem that, while governments themselves are struggling with the sustainability of debt, banks operating on the integrated money and capital markets are also relying on the national governments for a bailout. The difficulties of potential recovery are aggravated by the fact that the strict fiscal policy serving as the institutional foundation of the euro area needs to be restored at a time when the private economy is also in the process of deleveraging, while monetary policy is unable to boost growth through further interest rate cuts. Calming down the escalating crisis would have required rapid crisis management measures. However, the measures adopted as a result of compromises between economic rationality and political reality proved inefficient for a long time. The institutional vacuum gave rise to the emergence of self-generated negative spirals. It has now become obvious that the institutional framework of the monetary union needs to be reconsidered, including increased risk sharing between member states, and that an increasing number of fiscal and control functions need to be elevated to the Community level. The emerging institutional structure, which still lacks full political support, is seen as a longer-term strategic goal.