As the sovereign debt crisis burst in 2010, the European Union lacked both the instruments and the expertise to manage the situation. It thus resorted to the International monetary fund. Fund arrangements with euro area countries would not have been possible without changing the existing lending rules. Those changes provided the margins of flexibility needed to gain time and address systemic stress and heightened uncertainty. While seen by some as “a favour” to Europe, the changes introduced may well prove quintessential in tackling future crises in other regions of the world: repealing or modifying the amendments would not be desirable now. The exposure of significant gaps in Europe’s institutional setting solicited deep reforms. Five years into the crisis European economic governance is much stronger, and institutions and procedures for crisis management are in place and operating. It seems that the EU and the euro area would be less in need of external help should they be confronted with new crises in the future. However, some excess rigidity remains in the mechanism governing the provision of financial support and the euro continues to be a “money without a state”.

Read the document