Friday, October 11, 2013

Europe’s Choice: Risk Stagnation or Pursue Integration

by Nemat Shafik


October 11, 2013

Europe faces a stark choice: risk stagnation or pursue integration. It can continue to muddle through, and hope that growth in the world economy will eventually pick up enough steam to pull its economy out of the doldrums. Or it can make a decisive push to revitalize its economy and complete the reforms needed to achieve a fully integrated economic and monetary union

Five years into the crisis, recovery in the euro area remains fragile. Important actions at both the national and euro-wide levels have tackled the immediate threats to the single currency. These include the European Central Bank’s announcement in 2012 that it stands ready to undertake outright monetary transactions in secondary sovereign bond markets, the completion of the European Stability Mechanism, which created a financial firewall around the euro area, and efforts to restore the health of public finances and implement structural reforms.

But countries on the euro area periphery are still recovering from recession and there is also weakness in some core countries. Financial markets remain fragmented and unemployment, especially among young people, and in the periphery, is at record highs.

In the hardest-hit countries, the social fabric has started to fray, reform fatigue is setting in, and politics have become increasingly polarized.


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