Document Type

Article

Disciplines

International Law

Abstract

Several national economies within the European Union - and possibly the Euro Zone' itself - are in a ditch, struggling to scramble their way out.' The situation has been collectively referred to as a sovereign debt crisis, and multiple dramas have been playing out around the attempts by these economies to resolve it. However, beyond the immediate drama lie serious institutional implications that have called into question the character and viability of the Euro Zone and the European Union as currently constituted.

This paper examines how different paths converged into the sovereign debt crisis,3 the implication being that this is not a situation in which a single solution is likely to be appropriate for all manifestations of the current crisis in different national economies. The paper will then consider alternatives in formulating responses, depending upon the nature of the crisis. It then examines EU approaches to resolution of the crisis, which went from a member-state focus to a system-wide focus,5 typified by last winter's negotiations over a "Fiscal Compact."6 The paper then analyzes broader institutional implications of the crisis, 7 including the impact on reformed international capital adequacy regime ("Basel III"),8 and the impact on U.S. limitations on proprietary trading by banks ("Volcker Rule").9 The paper argues essentially that Basel III and the Volcker Rule have been rendered hostages to the sovereign debt crisis.' 0 It concludes that officials responsible for Basel III and the Volcker Rule should detach them from the crisis, because the merits of each are greater than any concern with crisis management.

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