Philip Arestis and Malcolm Sawyer
The international financial crisis of 2007-2008 and the subsequent “Great Recession” have added to the problems of the euro area, which had long suffered from a poor design and inadequate policy framework. These problems have been faced in a number of ways—many, such as the Fiscal Compact which replaced the Stability and Growth Pact, distinctly unhelpful.
The European Union (EU) summit meeting, June 28-29, 2012, took a number of decisions: banking licence for the European Stability Mechanism (ESM) that would give it access to ECB funding and thus greatly increase its firepower; banking supervision by the ECB; a “growth pact,” which would involve issuing project bonds to finance infrastructure. Two long-term solutions were proposed: one, a move towards a banking union and a single euro-area bank deposit-guarantee scheme; another, the introduction of euro bonds and euro bills. Germany resisted the latter, arguing that it would only contemplate such action under a full-blown fiscal union. Not much has been implemented in any case.