Romano Prodi

Europe at a Crossroads

Allison Nathan, Jari Stehn, Otmar Issing, Romano Prodi, Timothy Garton Ash

Over the last 18 months, the European Union has executed a historic fiscal shift by suspending stability rules and issuing €800 billion in common debt through the Next Generation EU fund to transfer resources from stronger to weaker member states. While this expansionary strategy, supported by the European Central Bank and a new German coalition, introduces a "stick and carrot" reform mechanism, it faces significant hurdles including potential moral hazard, legal challenges to the Maastricht Treaty, and the resilience of nationalist forces. The long-term sustainability of this integration depends on whether the bloc can manage temporary measures, navigate political risks like a potential French populist return, and adapt outdated fiscal criteria to current economic conditions before the recovery fund winds down.