Economic observers have worried for months that growing sovereign debt crises among the euro-zone's weaker nations and faltering attempts to stanch the fiscal fallout could throw the global economy back into deep recession. Regardless, the euro zone's leading powers -- Germany, France and Italy -- continued dithering as deepening crises mounted in debt-laden Greece, Portugal and Spain, and put withering pressure on the viability of the euro monetary union.
The sudden decision Thursday by five central banks to intervene with injections of U.S. dollars to shore up the euro zone's weakest members apparently has calmed anxiety about the possible crash of the euro. But that relief will be only temporary if the euro's leaders fail to undertake core reforms.
The euro crisis results from the austerity programs forced on the euro's poorest members, which have increased the depth of the recessions that produced their individual crisis in the first place. As their economies worsened, they have had to borrow at increasingly higher rates to service their burgeoning debt, sparking ever-deeper free-falls.
The emergency aid offered by the U.S. Federal Reserve in coordination with the Bank of England, the Bank of Japan, the Swiss National Bank and the European Central Bank will allow Greece, Portugal, Spain and Italy access to lower-rate loans that will tide them over until the end of the year. But euro-zone countries must at last grapple with fundamental issues: the need for a single fiscal policy apparatus over all the euro-countries, and the ability to establish a euro-wide bond system that will provide a level interest rate for all its members.
The need for central fiscal authority over euro members' now individual fiscal policies have been apparent since the euro zone and single currency was established. All its members converted their currencies to the euro, but the arrangement never had a central fiscal authority or bond system. That must change, or the euro crisis will become the nightmare now feared.