Instead of worrying about difficult medium to long-term issues like Eurobonds and a fiscal union, the euro zone's leaders should focus on the immediate problems of recapitalising its banks, giving Greece breathing space and restarting economic growth, argues Barry Eichengreen.
Barry Eichengreen is professor of economics and political science at the University of California, Berkeley. His most recent book is 'Exorbitant Privilege: The Rise and Fall of the Dollar'.
"Europe is again on the precipice. The most recent Greek rescue, put in place barely six weeks ago, is on the brink of collapse. The crisis of confidence has infected the euro zone's big countries. The euro's survival and, indeed, that of the European Union hang in the balance.
European leaders have responded with a cacophony of proposals for restoring confidence. Jean-Claude Trichet, the president of the European Central Bank, has called for stricter budgetary rules. Mario Draghi, head of the Bank of Italy and Trichet's anointed successor at the ECB, has called for binding limits not on just budgets but also on a host of other national economic policies.
Guy Verhofstadt, leader of the Alliance of Liberals and Democrats for Europe in the European Parliament, is only one in a growing chorus of voices calling for the creation of Eurobonds. Germany's finance minister, Wolfgang Schäuble, has suggested that Europe needs to move to full fiscal union.
If these proposals have one thing in common, it is that they all fail to address the euro zone's immediate problems. Some, like stronger fiscal rules and closer surveillance of policies affecting competitiveness, might help to head off some future crisis, but they will do nothing to resolve this one.
Other ideas, like moving to fiscal union, would require a fundamental revision of the EU's founding treaties. And issuing Eurobonds would require a degree of political consensus that will take months, if not years, to construct.
But Europe doesn't have months, much less years, to resolve its crisis. At this point, it has only days to avert the worst. It is critical that leaders distinguish what must be done now from what can be left for later.
The first urgent task is for Europe to bulletproof its banks. Doubts about their stability are at the centre of the storm. It is no coincidence that bank stocks were hit hardest in the recent financial crash."
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Published in partnership with Project Syndicate.