The euro, Europe's single currency, came under intense scrutiny in 2010. Greece came dangerously close to defaulting on its public debt, financial markets speculated on the country being ejected from the euro as well as other mediterranean countries, the EU established a European Stabilisation Mechanism (ESM), later dubbed the European Financial Stability Facility, in response to provide loans to Greece (or any other country needing loans). Greece ended up subject to intense budgetary scrutiny and cutback demands from both the IMF, which topped up the ESM, under the EU's Excessive Deficit Procedure.
Despite all of this, the euro has been a blessing to the EU. There have been no repeats of currency volatility of the kind Europe experienced regularly in the 1970s, 1980s and 1990s.
Also clear is that the EU's deficit rules don't enforce themselves. They are being enforced at the insistence of Germany, which has led the drive to tighten the screws on Greece, to corral the member states of the euro zone into paying for the ESM, to harangue Slovakia for threatening not to pay into the EFSF, and to insist that the Greece be made an example of.
The reason Germany is taking the hard line? German public support for the euro is low. And anger at Chancellor Merkel for organising the Greek bailout is high. It has cost her party control over the large state of North-Rhine-Westphalia, and her party's majority in the German parliament's upper house.
A New Mankiw Publication
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