Despite the progress that European leaders have made in bringing financial stability to the eurozone, the European Union continues to face a severe economic and political crisis. This crisis has not only threatened the viability of the single currency, but also fostered political tensions that are weakening the foundations of the EU. These troubles emerged from financial mismanagement, unsustainable public debt and the lack of structural competitiveness in the southern tier. Economic missteps developed into political fragmentation, pitting wealthier member states in the north against weaker economies in the south. Economic dislocation has combined with political division to awaken widespread public scepticism about the merits of European integration.
European leaders have responded to this crisis by combining fiscal consolidation with a credible road map for banking and fiscal union, a step meant to provide the euro with the collective oversight and enforcement mechanisms it needs – and should have had when it was first introduced. The problem is that the austerity being doled out to put Europe's house in order is undermining the readiness of European publics to accept the deeper union that is needed to redress Europe's economic woes. The debt crisis has soured European electorates on the project of European integration, renationalising politics and calling into question whether member states will be prepared to countenance the more extensive integration that European leaders are currently striving to bring to fruition.
This essay begins by examining the economic side of the eurozone crisis. Significant strides have been made by periphery countries in reforming their economies and reducing their fiscal deficits, and the liquidity actions of the European Central Bank (ECB) have provided important breathing space. However, the crisis has left a legacy of damaged bank balance sheets and excessive levels of government debt in many countries. We suggest that more rapid progress towards fiscal and banking union may be needed to establish the conditions for a return to growth that is essential for exiting the crisis. The essay then goes on to examine the political prerequisites of recovery. Our analysis provides cautious optimism that the EU is heading down a path that could bring the crisis to an end, and that EU member states are committed to remaining on this path. However, the EU is by no means out of the woods; rebuilding public confidence in the project of European integration will be an essential but elusive task in the months ahead. Now that the debate over bailouts and austerity has politicised the EU and spilled into British pubs, French cafés and Greek tavernas, elites have little choice but to engage publics and seek to convince them of the merits of deeper union.