The EU is facing its most serious economic crisis since the creation of the Common Market in the 1950s.  The current deep and persistent Eurozone crisis threatens the main pillars of the foundations of the Economic and Monetary Union (EMU).  Even before the crisis several economists had put forward the view that the EMU also required a fiscal union and a minimum level of political integration for its smooth functioning.  It is essential to understand the broader context of the crisis and how to take the debate on the future of Europe forward. 

 

The economic policies pursued so far to address the excessive fiscal deficits and high public debts in several countries of the Eurozone have, not surprisingly, been procyclical.As demonstrated by the Greek experience, a draconian fiscal austerity policy cannot be expected to resolve the debt crisis and the restructuring of the economy. 

 

Cyprus, which was once referred to as a model case study for its economic record, now faces serious structural problems.  Following the initial agreement on a memorandum of understanding it is expected that Cyprus will soon formally sign an economic adjustment program with the Troika.  The challenge for Cyprus is to avoid the Greek predicament and to get out of the crisis relatively quickly.