This paper investigates why Europe fared particularly poorly in the global economic crisis that began in August 2007. It questions the self-portrait of Europe as the victim of external shocks, pushed off track by reckless policies pursued elsewhere. It argues instead that Europe had not only contributed handsomely to the buildup of global imbalances since the 1990s and experienced their implosive unwinding as an internal crisis from the beginning, but that it had also nourished its own homemade intra-Euroland and intra-EU imbalances, the simultaneous implosion of which has further aggravated Europe's predicament. To keep its own house in order in the future, Euroland must shun the outdated 'stability oriented' policy wisdom inherited from Germany's mercantilist past and Bundesbank mythology. Steps toward a fiscal union to back the euro are also warranted.
economic and monetary union Euro European Central Bank global imbalances global crisis intra-area imbalances competitiveness positions policy coordination tax-push inflation financial supervision mercantilism