European Integration, Step by Step, Focus of Latest F&D Magazine

More integration critical to region’s success, says IMF’s Reza Moghadam

Without stronger center, euro in danger, argues Oxford’s Kevin O’Rourke

Banking union, jobs and growth essential for resolution to European troubles

Over 20 million people in the euro area, or 12 percent of the population, were out of work at the end of 2013, and output was 3 percent below that at the start of the crisis. “Europe is in a terrible mess,” says Oxford University’s Kevin O’Rourke in the March 2014 issue of F&D.

O’Rourke sees this as evidence of a dismal policy failure largely due to the limits that monetary union puts on policymaking. He says Europe is now “defined by the constraints it imposes on governments, not by the possibilities it affords them to improve the lives of their people.” The solution is either a federal political Europe, or a European Union without a single currency. “If a crisis is inevitable, then it is best to get on with it, he says.

But the latest IMF World Economic Outlook Update says the euro area is turning the corner from recession to recovery. Growth is projected to strengthen to 1 percent in 2014 and 1.4 percent in 2015, though the recovery will be uneven and countries that have been under stress will see a more modest pickup. High debt, both public and private, and financial fragmentation will hold back domestic demand, while exports should further contribute to growth. Growth in central and Eastern Europe is projected at around 3 percent.

Reza Moghadam, head of the IMF’s European Department looks back at Europe’s experience, and concludes that the commitment to closer ties runs deep. And yet economic, financial, and fiscal integration remains incomplete. That deficiency was the root cause of the euro area’s recent debt crisis and reinforced its severity. The answer, says Moghadam, is more integration, not less.

The global financial crisis exposed weaknesses in the region’s supranational structures and eroded political support for closer ties, writes Moghadam. But integration has yielded substantial benefits for Europe, and 25 years after the fall of the Berlin Wall it continues to be the best way forward for the region.

Moghadam notes that “the nascent recovery in the euro area risks creating complacency—a wrongheaded belief that the crisis is over and integration efforts can be relaxed.” Resolution of the crisis calls for stronger...