In this chapter I argue that the pathology at the heart of the euro crisis is a lack of credibility arising from the prerogative of sovereignty. The implication is that restoring credibility necessarily must involve reining in sovereignty. A brute force approach to this is a fiscal, or full-blown political, union. Below, I propose a milder approach that targets issues that pertain more specifically to the credibility, or integrity, of the common currency. My proposal offers a different vantage point for thinking about the problems of the common currency than the standard optimal currency area approach.

On the face of it, the euro area gives the appearance of being paralyzed by indecision. The same treaty comes and goes, revisiting the same old points. Here we have the Maastricht Treaty, there the Stability and Growth Pact, and yonder comes the Treaty on Stability, Coordination, and Governance with its Fiscal Compact. The maximum debt and deficit ratios are the same, but the penalties for crossing them vary, now weakening, now getting stronger. Convergence criteria are still on the table for member states, more than a decade after the inception of the euro and two decades after the Maastricht Treaty because, as seen in Table 12.1, official thresholds are not adhered to.

At the same time, despite a no-bailout clause in the Maastricht Treaty, bailouts of member states have become an integral part of the fabric of the euro. For some countries, the bailout processes never seem to end. The reason for all this is not indecision as such, but the prerogative of sovereignty that makes it almost impossible to reach final agreements.