Euro zone reform: Euro zone leaders could not have prevented the Greek crisis. But they made it worse. The European Union's convoluted (in)decision-making process, combined with political leadership vacuum in Germany, dragged the drama out over six months of contradictory statements and half-hearted proclamations of solidarity.
Euro leaders are now solemnly pledging they will heed the lessons of this unmitigated disaster. But there is little chance they will ever agree on the kind of reforms that could help them tackle the next crisis any better. And there is a limit to what reform can do to compensate for a lack of political leadership.
Greece laid bare two of the euro zone's major flaws: it lacks both a crisis-resolution mechanism, and robust supervision to prevent a crisis in the first place.
Everyone seems to agree on the need for tougher enforcement of fiscal discipline through a reformed stability pact. The way forward would be to agree on more stringent, and automatic, penalties for wayward countries, albeit at the price of taking away the fiscal flexibility needed in recessions.
But member states don't accept the consequences of such a virtuous proclamation. France wants to keep the freedom to spend liberally to counter economic cycles and soothe political and social unease. Germany is up in arms against the idea that national budgets should be pre-emptively monitored at the EU level. Southern Europe countries are wary of giving Germany too much influence on their economic policies. And smaller euro zone members will always suspect that France or Germany will be held to different standards. This means that opening the can of worms of a treaty renegotiation is a non-starter.
As for crisis management, euro members need to answer a basic question: what to do when one of them goes bust, or spooks markets by threatening to? Greece should not be allowed to set a precedent. Euro countries can no longer pretend that the worst — including defaults — can't happen. At the very least, ideas such as a European Monetary Fund, or a EU-wide sovereign debt restructuring mechanism, must be given serious consideration — even if all the reforms in the world will be of little use in the absence of political decisiveness.
