Can the euro survive after the European crisis

The ‘great recession’ has highlighted a range of problems with the ‘euro project’, but these problems and difficulties are related to some fundamental weaknesses of the euro. The convergence criteria established by the Maastricht Treaty focused on nominal rather than real variables, failed to relate to issues such as current account positions. There are well-known difficulties of macroeconomic policies under the Stability and Growth Pact including its deflationary nature and the ‘one size fits all problem’ of imposing common deficit requirements on all countries. Problems with the EMU monetary policy are also discussed before the economic performance of the euro area countries is briefly reviewed with attention paid to the differential inflation rates. Also accounted for are the changes in competitiveness as well as the current account deficits, and their implications for the future of economic performance within the euro area, and the euro itself. The nature of the reforms and their impact on the operations of the euro area are examined. The political limits (including those arising from the nature of the Treaty of Lisbon) and the ideological constraints (associated with the neo-liberal agenda) on serious reforms are discussed from which the general conclusion is that the needed reforms are extremely urgent, but unfortunately they will not be carried through. This discussion also includes consideration of the possible role for a substantial EMU-level fiscal policy and some other aspects of political integration. It is concluded that the deep-seated problems are unlikely to be resolved, casting a dark shadow over the future of the euro.