Has the Euro Been Saved or Not?

The euro is a political project at least as much as it is an economic one. As a result, it was put in place a decade ago with a number of features that a purely economic design would not have incorporated. It included too many countries; their economic characters were too divergent; their levels of unemployment, inflation, and productivity were too different; their financial structures for housing and pensions were in conflict; and so on, and so on. It was impossible to set a single interest rate that would be suitable for all these divergent countries. An interest rate that held back economic growth in one country would encourage reckless borrowing in another — by, incidentally, both the public and the private sectors. Also — unlike the dollar, the pound, the Swiss franc, and the renminbi — the euro was not governed properly. There was no economic government of the euro zone to run a Europe-wide fiscal policy in line with the European Central Bank’s monetary policy. And although these different features of the euro guaranteed economic dislocation and perverse outcomes, the euro zone did not have the three things needed to reconcile the differences or deal with the dislocations: namely, flexibility of wages; transnational labor mobility and migration; and transnational monetary transfers.