Financial Times: Largest economies must fix the eurozone

29 October 2014

Only peer pressure, opprobrium and fear will shake leaders up, write Olli Rehn and Jean Arthuis.

Not long ago, before the euro existed, French politicians would have felt uncomfortable presenting a budget in deficit. The devaluation of the franc against the Deutschmark was unpalatable at home and would have provoked a costly reaction from the markets. The single currency appears to have worked since as an anaesthetic. On the eve of the European Commission’s scrutiny of its 2015 budget – and after overshooting its deficit-reduction targets for a third time – France displays a disconcerting air of nonchalance.

So, three years after the eurozone reinforced its economic governance and brought in the fiscal compact – the treaty that strengthens the terms of the EU’s stability and growth pact – where are we, and where do we go?

The fear of a euro break-up has gone, and the days of make-or-break summits are over. But now the spectre of deflation haunts a highly unstable geopolitical climate. Some member states at the periphery underwent reform programmes that have broadly succeeded. Today it is the largest economies – France, Germany and Italy – that hold the answer to the European recovery conundrum.

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