Economic and monetary union (EMU) is perhaps the biggest and most courageous project the EU has ever undertaken. The euro’s success is not only crucial for the economic health of the eurozone and its members but for the credibility of the EU as a whole. European economies are much better placed to succeed in a global economy as part of a single market, with a single currency and integrated capital markets. Unfortunately, it is too soon to talk about EMU being a success. A successful currency union requires very flexible markets, a high level of competition across all sectors, full integration of participating economies and sound management of public finances. These criteria are a long way from being made.

The slow progress made in liberalising and integrating their economies is reflected in the lack of real economic convergence in the eurozone, as revealed by diverging trends in competitiveness. Unless, eurozone governments boost their reform efforts, further economic divergence is inevitable, putting great strain on the system. The widening spreads between the government bond yields of the strongest and weakest performing member-states suggest this is no longer a theoretical risk. The recession will exacerbate the underlying tensions within the eurozone, and could require the fiscally stronger member-states to come to the assistance of the weaker ones. Governments will then need to convince their voters that the reforms needed to ensure the success of the euro – liberalisation of labour markets, more competition and improved education and skills training – are also those that will boost economic growth and safeguard public services.