Maastricht and the Crisis in Europe Overview

The European Union was formed in 1992 with the signing of the Maastricht Treaty on European Union (TEU). In an effort to instill fiscal discipline and encourage trade and free flow of labor and capital without giving up sovereignty, member countries would participate in a monetary union while remaining fiscally independent. The caveat was countries would be expected to respect limits on the size of public debt and deficits and could not expect a “bailout” if national finances spiraled out of control. Market discipline reinforced by the “no bailout” clause was supposed to ensure member countries stayed in compliance with the fiscal rules.

That was the idea, but the practice was different from theory according to Reza Moghadam, director, European Department of IMF, in her presentation “Maastricht and the Crisis in Europe: Where We’ve Been and What We’ve Learned” delivered at the ECB/NBB Conference in Brussels on February 12, 2014.