This paper gives an overview of the causes of the European debt crisis and the consequences for the external relations. It finds that political mishandling has increased uncertainty, which has contributed to a tendency for the euro to become weaker.

Due to collective action problems, the Eurozone is stuck in a sub-optimal macropolicy mix of too expansionary fiscal policy and too restrictive monetary policy. Although the Lisbon strategy pays lip service to macroeconomic policy coordination, no mechanisms, institutions or effective rules are...