History will tell whether this was due to a benign global environment, to excessive faith in the endogenous effects of monetary union, or to badly designed institutions. The euro area became vulnerable to a breakdown of financial markets. Policy interventions temporarily provided risk-sharing arrangements for Europe, but ultimately, market-based risk-sharing mechanisms must be restored and strengthened.
Furthermore, the need for policy-makers to induce flexibility and convergence and for national fiscal policy to act responsibly must be taken seriously. New pan-European institutions can be an important complement to – without being a substitute for – policy actions at the national level.