Staring into the abyss

Economist
July 8, 2010

As the euro-zone crisis spooks governments, opinions are diverging dramatically about what the union is for

Will the European Union make it? The question would have sounded outlandish not long ago. Now even the project’s greatest cheerleaders talk of a continent facing a “Bermuda triangle” of debt, demographic decline and lower growth.

As well as those chronic problems, the EU faces an acute crisis in its economic core, the 16 countries that use the single currency. Markets have lost faith that the euro zone’s economies, weaker or stronger, will one day converge thanks to the discipline of sharing a single currency, which denies uncompetitive stragglers the quick fix of devaluation.

Yet the debate about how to save Europe’s single currency from disintegration is stuck. It is stuck because the euro zone’s dominant powers, France and Germany, agree on the need for greater harmonisation within the euro zone, but disagree about what to harmonise.

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