## Future-Proofing the Euro

## Source details

**Canonical URL:** [Future-Proofing the Euro](https://www.imf.org/-/media/files/publications/fandd/article/2025/06/books-wieland.pdf)

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### Overview
- Book reviewed: Crisis Cycle: Challenges, Evolution, and Future of the Euro by John H. Cochrane, Luis Garicano, and Klaus Masuch; Princeton University Press; Princeton, NJ, 2025; 328 pp., $35.
- Review author: Volker Wieland, managing director of the Institute for Monetary and Financial Stability at Goethe University Frankfurt and holder of the IMFS Endowed Chair of Monetary Economics.
- Context: The euro was introduced more than 25 years ago and has survived multiple crises, with its rules and institutions repeatedly changing.

### Diagnosis: current problems with the euro area
- Recurrent crisis-driven changes have produced "ever larger and less constrained monetary and fiscal interventions."
- These interventions have "sown the seeds for even worse future crises."
- In a currency union without fiscal union, overindebted countries lack credible default procedures; if the central bank prevents default or rising yields, incentives for fiscal responsibility weaken.
- Frequent interventions and recurrent inflation are likely consequences of the current setup.

### Book’s analytical approach and scope
- Accessible, conversational style rather than a dense, equation-filled treatise.
- Coverage includes: initial design of the European Economic and Monetary Union; the global financial crisis; the euro debt crisis; institutional reforms; zero interest rates with asset purchases and subsidized loans; the policy response to the pandemic; and the subsequent inflation surge and decline.

### Key policy recommendations and institutional proposals
- Establish a framework for orderly sovereign default and debt restructuring to be applied as soon as sovereign problems arise.
- Release the European Central Bank (ECB) from problems surrounding sovereign debt by:
  - Increasing the supply of truly European sovereign debt.
  - Ensuring the ECB does not intervene in the market for national sovereign debt.
- Reduce banks’ exposure to sovereign debt and sovereigns’ exposure to banks through regulation.
- Create or strengthen a strong European fiscal and political institution to offer temporary financial and balance of payments support in a crisis — including to the largest euro area economies — conditional on strict fiscal and microeconomic reform.
  - A strengthened and revitalized version of the European Stability Mechanism could fulfill this role.
- Favor long-term national sovereign debt over short-term issuance.

### Policy rationale and timing
- The authors argue reforms should be implemented "sooner rather than later" and "preferably in calm times, not amid the next crisis."
- Central tenet: credible mechanisms for orderly sovereign default and restructuring are necessary to preserve fiscal incentives and monetary stability.

### Conclusion / Urgency
- Crisis Cycle is presented as an "urgent warning" that Europe’s policymakers "must not rely on the next crisis to force much-needed reform to the single currency."
- The book urges action "now" to "future-proof the euro, before it’s too late."

*Volker Wieland, F&D, JUNE 2025; review of Crisis Cycle (Princeton University Press, Princeton, NJ, 2025, 328 pp., $35).*

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_Source: https://www.imf.org/-/media/files/publications/fandd/article/2025/06/books-wieland.pdf_