Europe stands at a crossroads in 2017.
For nearly 70 years, it has known only one direction: ever stronger integration involving a steadily rising number of countries. Now a big economy and political heavyweight has turned its back and is leaving the European Union. Brexit will be seen as a turning point in history.
For the time being it is very uncertain how relations between the U.K. and the EU of 27 countries will develop. The wider fallout remains to be seen. Nationalist parties from right and left in other countries are using the British example to support their calls to exit the EU. However, the enormous complexity of Brexit and the potential for economic damage may act as a deterrent to others tempted to take that path.
But it’s not only the EU that’s at risk. The euro is also at a crossroads. Writing this piece reminds me of the fact that I used this term in 2007 in the headline for the last chapter of my book, “The Birth of the Euro.”
Alarm bells ringing
Does this suggest that my warnings were too alarmist 10 years ago and remain so today? Unfortunately not. The euro went through an almost fatal crisis after the global collapse of financial markets in 2008. True, this event triggered a number of badly needed reforms in some member countries. Yet, 10 years on, European monetary union is hardly in better shape.
Much more ambitious reforms are still needed. Unemployment has risen to record levels and, notwithstanding some recent improvement, remains very high in a number of countries. Some governments have become so heavily indebted that they depend on the European Central Bank’s purchase of bonds to protect them from substantial increases in interest rates that would threaten their solvency.
Central bank balance sheets show capital is fleeing crisis countries to safe havens, in particular Germany, in record volumes. Greece is still teetering between needing another bailout and being forced to leave the euro.