Financial Times
Editorial
October 9, 2011
Europe’s monetary union is at the centre of a financial hurricane now closer than ever to tearing through the world economy and inflicting damage for years to come. The eurozone’s challenges are hardly insurmountable. The policies needed to end the crisis are hard, but feasible. Europe is on the brink because it is unable to muster the political will to do what it must.
Angela Merkel says if the euro fails, Europe fails. In truth, it is the other way around: if Europe fails the euro will fail, and uncountable strands in the fabric of European unity, including its single market, will unravel.
For the rest of the world, too, the implications of European failure are grave. Since the onset of the financial crisis there has never been a more urgent need to strengthen the global co-operation and free trade on which prosperity and economic progress everywhere depend. The mounting disorder in Europe could throw these efforts into reverse.
The risks inherent in the euro’s architecture were seriously mismanaged by its members. Borrowers lived beyond their means, lenders paid no attention to how credit was spent, and regulators stood by idly. The money supply was collectivised while fiscal policy and banking systems stayed national, so sovereign and bank funding problems reinforced each other without the circuit breaker of lending in the last resort. The locking of exchange rates could have helped less competitive nations catch up with productivity leaders; instead it allowed massive divergence.
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