Tribble wrote:The economies, cultures and political / social structures of the countries in the Eurozone are not at all the same, which makes a currency union a major challenge. Northern Europe and Southern Europe are pretty far apart in a lot of respects, yet they share the same currency. Normally the currencies would fluctuate with the countries' economies, but that is no longer the case. Because of the shared currency Southern Europe's currency is much higher than it would be under normal circumstances, which makes it uncompetitive.
Basically the Eurozone is in a situation where (for various reasons) it is very difficult for Southern Europe to be competitive compared to Northern Europe, while Northern Europe only remains competitive because Southern Europe keeps its currency lower than it otherwise would be. This isn't necessarily good news for Northern Europeans either as in order for them to remain competitive compared to their Southern neighbours they have been forced to put major lid on wage growth, which is why you have seen little of that over the past couple of decades.
Combine that with the lack of a formal fiscal transfer system (where parts of currency union which are doing poorly would receive transfers from parts that were doing well) in order to help balances things, and it should become apparent why the Eurozone is not doing well.
All of this is true. But nevertheless, I think a few points should be added:
1.) During the German reunification, the German chancellor Helmut Kohl made a deal with Francois Mitterand and Margaret Thatcher. In a nutshell, the concept was to embed Germany into the NATO and and into Europe. This was meant to ensure that the unified Germany cannot dominate Europe despite its economic strength.
Part of this was getting rid of the Deutsche Mark and switch to a common European currency.
To understand this, one must look at the 80ies: Back then, the Bundesbank (the German federal bank) only controlled its own currency, the DM. The central banks of the neigbouring countries were completely independent - in theory.
But as a matter of fact the Bundesbank controlled the "biggest" currency in Europe with the biggest domestic market. This had an influence on the other European currencies due to the sheer size of the German economy. As a consequence, the other European central banks had limited power over their own currencies.
For example, when the Bundesbank raised their key interest rate during the 80ies, the French central bank could hardly lower their interest rates at the same time and vice versa. The French Franc would lose a fight against the DM anyways.
So from the point of view of the French government a common currency would ensure that they have a word to say in this matter: A European central bank would have to take French interests into account, which was a concept alien to the Bundesbank (it only cared about the stability of the German currency by definition).
2.) The Euro was meant to be only a single step in the way to a closer European integration
Of course the European governments in the 90ies realized that a single currency without a single government is a doubtful concept. So the line of thought was that the Euro would automatically lead to a tighter integration of the EU's countries.
This failed, obviously.
3.) It is not easy to leave the Euro once you have it
If a country would leave the Euro, it would have to face side effects of this decision. Let's say a southern European country leaves the Euro because it wants to have a "weaker" currency.
Then the ECB would even be a bigger behemoth than the Bundesbank was back then. This would put a restriction on the "independency" of the new central bank.
Of course the new currency could (and would) devaluate, though. While this would create new jobs from a macroeconomic perspective, it also would make imports more expensive.
And this in turn means that people who were previously employed would have to spend more money on imported products - things like fuel, medicine, consumer goods etc. This would drive inflation, with all its negative side effects.
So I'd say that it'S not a given that the Southern European countries would benefit from leaving the Euro, at least not initially. Of course after a few years things will settle down. But at the beginning, this is no cakewalk.
So while I agree that the Euro is in effect a failure, it is not easy to get rid of it. Also, the reasons for introducing the Euro weren't all idiotic. It just did not develop as planned - Germany is still dominating the EU from an economic standpoint and the tighter integration also failed.
Ladies and gentlemen, I can envision the day when the brains of brilliant men can be kept alive in the bodies of dumb people.
