Introduction
With benefit of hindsight – that is to say, with full knowledge of the sovereign debt crisis
that erupted in Greece in 2010 and quickly infected much of the European periphery – it
is tempting to assert that the monetary integration project leading to the creation of the
euro was a mistake (see, for example, Krugman, 2009). One also hears more nuanced
critiques that the mistake was to opt for a large monetary union including relatively poor
countries like Portugal and Greece. In both cases, however, hindsight is 20/20. More
interesting is the question of why more analysts did not see the problem coming.Was the
standard economic analysis of European monetary integration deficient in ways that
discouraged economists from issuing louder warnings? Equally important is why the
mechanisms that European Union (EU) Member States put in place to address the risks
that they did, in fact, perceive proved inadequate for containing them. Finally, there is the
question of what steps now must be taken to resolve the crisis and whether the EU has the
wherewithal to take them.