Europe Is Heading Toward a New Financial Crisis
Completing the EU’s banking union might be the only way to avoid the dreaded “doom loop.”
Beware the loop of doom.
Photographer: Francesca Volpi/BloombergEurope faces a predicament. Even as it struggles to contain the Covid-19 pandemic, it’s setting itself up for another crisis — this one financial. To ensure the viability of the common currency at the heart of the European project, the EU’s leaders will have to cooperate in ways they’ve so far resisted.
Adopting the single currency has yielded great benefits, from frictionless trade to improved global competitiveness. But the euro also obliged member states to relinquish the independent monetary policies that can help backstop national debts and financial systems. One result is that distress at banks presents a heightened threat to individual governments’ finances, and vice versa — the so-called “doom loop” that played out in spectacular fashion during the early 2010s, when the euro area nearly broke apart.