Briefing Paper

Paola Subacchi and Stephen Pickford
  • Greece's recent bailout is just the latest stage in a deep-rooted crisis for Europe's monetary union that was exacerbated by the global financial crisis. Without measures to deal with the current crisis and to address the underlying problems of the euro area, it is hard to see EMU surviving in its current form.
  • Countries in the euro periphery have suffered from long-standing fiscal problems, under-performing economies, imbalances and a widening gap in competitiveness with 'core' countries.
  • These periphery countries now face problems requiring a combination of urgent and long-term measures. In the immediate future they have to convince markets that their fiscal plans will reduce debt without a collapse in growth, and to normalize their banks' access to market funding. In the longer term they must achieve sustainable increases in growth, improve competitiveness and rebalance their external payments positions. They must adapt to the constraints of the single currency.
  • Reforms are needed to help the periphery countries live with the euro. At the same time the incentives for correcting imbalances need strengthening, with the burden shared more equitably between deficit and surplus countries, in order to create an effective model for growth within the euro area.