The Eurozone: What Now?

The financial and economic crisis in Greece in 2009/2010 has reawakened interest in the future of the euro and the eurozone. After briefly explaining its sources, this article focuses on the longer-term issues to which the crisis gives rise. It explores the underlying weaknesses of current eurozone arrangements, and assesses whether the crisis will stimulate reforms designed to remedy them. The analysis suggests that, as with many crises, the one in the eurozone will lead to only relatively modest changes; these are unlikely to go much beyond the fairly ad hoc provision of emergency finance. Fundamental reform based on closer fiscal coordination, orderly insolvency arrangements or the establishment of a European Monetary Fund are unlikely. The break-up of the eurozone also seems unlikely. Indeed the crisis may catalyse structural reforms that in the long term increase the eurozone’s durability. The crisis also has important implications for the IMF.