How the euro survived a series of crises and how to make it more resilient The euro has
survived crises unimagined at its founding: the financial meltdown of 2007–2009 the sovereign
debt crisis of 2010–2012 the pandemic and the Russian invasion of Ukraine. The European
Central Bank fought these crises with dramatic policy innovations buying up vast amounts of
debt and providing large loans to banks. But now everyone expects the ECB to intervene
routinely and the euro is more fragile as a result. Crisis Cycle recounts this history and
offers recommendations for restoring a durable monetary union. Monetary and fiscal policy are
intertwined especially in a currency union like the eurozone. Member states can be tempted to
borrow and spend too much and then count on the ECB to rescue them by printing money to buy
their bonds. To avoid these disincentives the ECB was founded with a narrow mandate: use
interest rates to pursue price stability and don’t buy sovereign debt. Debt and deficit rules
would keep countries from getting into trouble. The ECB’s emergency innovations brought back
these disincentives. How can the EU avoid larger and larger bailouts? The authors argue that
Europe needs a joint fiscal institution that can provide temporary help to sovereigns a
resolution mechanism so sovereign default is a motivating possibility and bank reform that
ensures sovereign default will not bring down the financial system. This timely book shows how
to restore the euro’s ambitious and effective founding framework. The unique group of authors
combine extensive policy experience and authoritative academic credentials.
