EU Crisis: This Week Could Change the Global Economy

LONDON—This looks like “the week that was” for Europe, as it prepares for a European Council summit in Brussels this Thursday and Friday. As of Monday evening, a 10-page draft document will begin circulating among EU leaders, outlining a new, post-crisis framework for the euro. One hopes the document is good enough to keep the markets in line.

We have been through other passages of drama since the European economic and debt crises erupted three years ago. This one is different. Either Brussels unveils a framework for a new, more unified European Union, or the markets will start savaging Spain, Italy, and Greece and an EU breakup will, for the first time, be a near-term reality.

There are grounds for optimism and pessimism both, but more for the former than the latter. Two big decisions loom before the summit. First, leaders must determine they are willing to provide short-term relief to Europe’s ailing peripheral economies in recognition of the negative effect too much austerity has had on them. Growth policies, in other words, are urgent, along with flexibility by way of the structural reforms and austerity measures already in place.

Second, Brussels needs to recognize the moment for what it is. When it launched the euro a decade ago, Europe understood that it was taking an historic step forward in making itself one. It is now time for another such step, just as large in magnitude. Now Europe needs to go forward by way of a fiscal union, a common banking authority, and closer political ties, among other things. These all cut very close to Europe’s core issue, which is the extent of national sovereignty vs. the extent to which populations are Europeans first and Belgian, Spanish, or Portuguese second. Read more......