1. Introduction: Managing Complexity

Despite the impressive rebound seen on European financial markets following Mario Draghi’s famous speech in late July 2012, European leaders still face formidable challenges. The restoration of some confidence on financial markets should not conceal the long-term challenges to make the European Monetary Union function better in future and to make it more resilient to shocks. Despite somewhat weaker headwinds for government borrowing, the situation remains highly complex. Fiscal sustainability has not been restored in a number of countries as the consolidation of fiscal deficits is being hampered by recession or very weak growth. Some reforms to restore economic competitiveness have been enacted, but more needs to be done. As unemployment has risen markedly in most countries and even exceeds 25 % in Spain and Greece, any changes in labour regulations or social security entitlements will continue to provoke demonstrations on the street and will support the more radical political movements in the countries concerned. Beside these problems in their respective home countries, EU leaders also need to restore confidence in the capability of the EU and the EMU to take the necessary steps to prevent such crises from re-occurring. Cohesion in the Union of 27 countries seems at risk. National interests are diverging and the UK is even discussing an exit. In the eurozone, the countries that are expected to foot the bill or at least assume the fiscal risks of their partners are in confrontation with those countries receiving support and, sometimes loudly, sometimes quietly, calling for more solidarity. There are big differences in political views concerning the right balance between austerity and growth: How much bitter medicine in terms of public savings or wage restraint is necessary to become healthy again? And how much burden will the taxpayers take without intervening against European integration? Given this complexity, it is not surprising that the polarity of views is increasing and that the whole euro project has been called into question.