Managing Crisis in the Eurozone

Euro crisis displayed its full blow in the spring of 2010. Its dynamics revealed deep-seated structural flaws at the core of the EMU. The productive Germany is tied via the euro currency union to countries that have lower productivity rates and inefficient economies. This union has been beneficial to the countries of Southern Europe so far since EMU inception, as it provided them with cheap credit. EMU showcased its problematic institutional design. Compared to mature federations, the institutional design of EMU is incomplete. On the one hand, there is a strong ECB that decides monetary policies for the entire euro area. At the same time, there is a lack of macroeconomic policy coordination for the same area. The budgetary and fiscal policies are set by governments of national states. This is of great concern for the vitality and robustness of the EMU in the context of soft constraints imposed by the Stability and Growth Pact. In the first part, this paper will highlight basic structural problems that led to the current crisis of confidence in the common European currency. The second part intends to discuss the lack of monetary and fiscal policy coordination, while the third part analyzes monetary and fiscal responses to the crisis by the EU institutions and national actors. The fourth part seeks to portray some possibilities for overcoming deep-seated structural imbalances, and questions the likelihood of "gouvernement economique" as a new stage in European integration.