European leaders were driven by three motives when they embarked upon that ill-fated monetary experiment, the euro. The first was financial: they were set upon the creation of a global currency that was capable of competing on the world stage with the dollar. The second motive was economic. By eliminating exchange risks, they believed they would promote trade and deepen the single market.
But the over-riding purpose was, beyond question, political. The founding fathers of the eurozone were determined to use the single currency to promote political union. By doing this, they hoped to domesticate Germany, which had caused such chaos and devastation across the continent during the first half of the 20th century.
Noble though this project was, it is now possible to judge that it has failed on all counts. The euro has not mounted a serious challenge to the dollar, and it is no longer able to do so. Indeed, Europe is beginning to be held in contempt by the emergent powers of the Far East: hence the recent decision by China to hold off from purchasing any more euro-denominated debt, an overlooked reason why Italian and Spanish bond yields have soared in recent weeks.
Meanwhile, trade falters. The benefits of a single exchange rate were real enough. But they have been eclipsed by a problem which the founders failed to foresee. The ongoing economic calamity means that counter-parties are no longer prepared to do any business at all with the weaker eurozone countries.
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