Why the Euro Is Near Death

It was the political decisions made by European leaders that ultimately put the solvency of individual countries at risk. The single gravest error in the EU crisis-resolution process was the decision by eurozone leaders back in October 2008, following the collapse of Lehman Brothers, to pursue a chacun-pour-soi (every-man-for-himself) approach to banking resolution: Each country would guarantee its own banks. With that decision, the banking crises in the eurozone's periphery became a series of contagious, national fiscal crises. If eurozone leaders had set up a eurozone-wide rescue fund for ailing banks, accompanied by a bank resolution regime, the crisis would have remained contained in the private sector. If the EU had sorted out the banks back then, it could have chosen among a variety of options in dealing with the one genuine fiscal crisis it had in Greece.