The Eurozone Crisis and the Future of Europe

Reflection Essay

The Eurozone crisis and the Future of Europe

“It is clear that since September 2008 we have been facing the most difficult situation since the Second World War—perhaps even since the First World War. We have experienced—and are experiencing—truly dramatic times… A number of markets were no longer functioning correctly; it looked somewhat like the situation in mid-September 2008 after the Lehman Brothers’ bankruptcy”.

Jean-Claude Trichet, European Central Bank President

Europe is experiencing one of its biggest crises ever. The Eurozone is standing at a crossroads, facing the biggest challenges in its history: the systemic crisis and the political attempts to overcome it have far-reaching consequences for the future of the Economic and Monetary Union, European integration and Europe in the world. The crisis in the Eurozone has been the greatest failure in the history of European integration. Uncontrolled accumulated debts have confronted member states with a difficult set of inter-state and domestic problems, associated with the distribution of the burden of economic adjustment following a decade of ill-advised lending and borrowing. To the discredit of both national governments and European institutions, conflict has dragged on for years – and still continues – with no real resolution.

At its core, the Eurozone financial crisis is a crisis of sovereign debt, but its roots lie in the United States’ financial crisis beginning in 2007, which precipitated the global financial crisis. With the collapse of Lehman Brothers in 2008 and the beginning of the global recession, states in the Eurozone with high levels of public debt faced restricted access to international bond markets as banks facing a liquidity crisis reduced longer term lending in favor of short-term securities, leading to the possibility of insolvency for the debtor states. The threat of insolvency led to the EU/IMF bailouts and the austerity requirements that...