On the eve of the European Council of 28th and 29th of October, Tommaso Padoa-Schioppa expresses his view on the way the EU has handled the crisis since the 2009 Spring European Council, on the existing proposals to reform the EU economic governance framework, on the priority areas in which the EU needs to take action and on the broader global G20 debate.

2010 is the year in which the crisis has come to Europe. This happened not because the causes of it were primarily European: on the contrary, Europe did not have big external imbalances, did not have a lack of domestic savings and had less extreme forms of speculative finance. It became European because, at a certain point in time, markets started to perceive that Europe lacked the instruments to manage it; that the Union, in a way, was not a union. Hence a collapse of confidence in the Economic and Monetary Union’s capacity to survive the storm. The immediate targets of speculation were the solvency of some member countries and the ability of some sovereign debtors to sustain themselves, but the ultimate target was the Union itself.

2010 is thus the year in which the EU and the EMU are called to contradict this sentiment and restore confidence by showing ability to act as a Union in front of a major challenge threatening its survival.

In my June conversation I observed that, with its May-June decisions, the EU acted forcefully against the crisis: in May, by obtaining from Greece a serious adjustment package, by offering a very substantial financial support to Greece and by creating new instruments such as the European Financial Stability Fund; in June, by agreeing on a program of fiscal consolidation for all the member countries. These decisions refuted the critics of EU impotence. Yet, they were just emergency actions to stop the loss of confidence, not structural measures improving the crisis management and the crisis prevention ability of the EMU in a permanent way.