Matthew C. Klein has written an excellent paper showing how the euro has failed to bring about the benefits for all that it was supposed to confer to the eurozone members, in 'The Euro as Pointless" in the Financial Times of November 11.
“It’s easy to forget now, but the single
currency wasn’t created purely as a political project.
Many economists in the 1980s and 1990s thought
monetary union would encourage cross-border investment and trade by eliminating
the risk premiums associated with the supposedly destabilising devaluations of
the past. The net effect would be converging living standards, dampened
business cycles, slower inflation, and faster productivity growth for everyone
— the benign Germanisation of Europe.
This was a laudable goal, but unfortunately
it’s not how things worked out.”
This is precisely what I showed in my 2002
paper “l’euro, tout était faux”, an early analysis of that failure
here.
Excerpt from Klein’s conclusion:
“In retrospect, it’s clear the euro simply
shifted risk from exchange rate fluctuations to defaults (for foreign
creditors) and nominal income (for domestic workers and businesses). This
wasn’t sufficiently obvious at the time, however, or we wouldn’t have seen such
massive growth in cross-border banking and portfolio flows within the currency
bloc before 2008.
Contrary to what the euro’s founders believed,
it now appears the absence of monetary union is what’s needed to channel
capital flows most productively across borders. That’s the real tragedy of the
single currency: it was pointless from the start.”
Highly recommended.
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