When Harold Macmillan was asked what caused him the greatest difficulty while he was prime minister of the United Kingdom, he replied simply, “Events.” In the past two years, the events that have proved most difficult for Europe’s political leaders are rooted in the global economic crisis that, like the Great Depression of 1929, began in the United States but swiftly spread throughout the developed world.
To understand what it is at stake, it is important to remember that Europe faces both an immediate sovereign debt crisis, caused by large budget deficits in many countries, and a potential banking crisis, caused by the fact that European banks are heavily invested in government bonds. Because seventeen of the European Union’s twenty-seven members share a common currency, a default of any member government or a failure of any important bank is bound to have an impact on the system as a whole.
As of midsummer 2011, the end of this dual crisis is nowhere in sight. On July 21, European leaders agreed to a complex package of measures to save Greece, Europe’s most vulnerable economy, from default and also to establish mechanisms that could deal with the broader problem of sovereign debt. Meeting in an emergency session in Brussels, the heads of states in the euro zone agreed to use the European Financial Stability Facility (EFSF), a holding company established in May 2010 and owned by the euro-zone nations, to support the bond market by buying distressed...
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About the Author
James J. Sheehan, professor emeritus of history at Stanford University, is the author of Where Have All the Soldiers Gone? The Transformation of Modern Europe, among other books.