Macroeconomics & the euro

Europe faces a critical choice between greater integration or disintegration. The gap between the rhetoric of a united Europe and the reality of national interests and politics has always dogged the EU.

Despite their battered reputation, markets remain the best way of generating economic growth. But the market economy faces a crisis of legitimacy brought about by rising inequality and a breakdown of the relationship between risk and reward.

Germany has finally agreed to help bail out Greece. The negotiations were acrimonious and took months. Angela Merkel’s hesitation and prevarication have increased the cost of the bail-out and unsettled financial markets.

George W Bush convened the first G20 summit in Washington in November 2008, at the height of the global financial and economic crisis. At two further summits in 2009, G20 leaders pledged to co-ordinate their economic stimulus packages (as well as exit strategies), avoid protectionism, address global imbalances, triple the resources of the IMF, and work out stricter rules for banks, hedge funds and other financial players.

There was always a risk that a one-size-fits-all monetary policy would lead to big divergences in inflation and competitiveness across the eurozone. This, in turn, would result in trade imbalances which would be difficult to reverse.

In 2008, the global financial system came close to collapse. Ever since, policy-makers have been busy overhauling the way it is regulated and supervised. Will this flurry of activity produce a more stable financial system – and if it does, at what cost?

The eurozone has suffered a deep recession – bigger than the US and about as bad as that in the UK. Public finances across the eurozone have worsened dramatically, and in some cases now look perilous.

It is 20 years since the Berlin Wall crumbled and political and economic freedom started spreading through Eastern Europe. Today, however, the region is mired in deep recession.