Europe’s New Fiscal Deal Is a Triumph. Now Fix It.

The European Union is on the verge of an impressive achievement: Its leaders have all but agreed on a credible deal to keep deficits and debts from getting out of control. A few adjustments are still needed, though, to ensure that the new pact doesn’t do unnecessary damage.

Europe faces two major fiscal challenges. It needs to ensure that the finances of member states — notably Italy, where sovereign debt exceeds 140% of gross domestic product — don’t deteriorate to the point that they break up the currency union, as Greece’s almost did a decade ago. At the same time, it needs to make way for hundreds of billions of euros in public investment required to bolster defense, update infrastructure and achieve the goal of net-zero carbon emissions by 2050.

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