An unhappy 20th birthday for the euro – AEI – American Enterprise Institute: Freedom, Opportunity, Enterprise5th January 2019
It is disappointing that your editorial “ Challenging times lie ahead for the eurozone” (January 2), commemorating the euro’s 20th anniversary, glosses over how miserably the single currency has failed to deliver on the high economic and political expectations of its founders.
Whereas since the 2008 crisis, the US economy has grown by some 15 per cent, the eurozone economy has barely regained its 2008 pre-crisis peak. At the same time, economic disparities between the eurozone’s north and south have widened, as exemplified by Germany’s economy now being more than 10 per cent above its 2008 level while that of Italy remains 5 per cent below that level.
Far from promoting European political harmony, the euro seems to have done the opposite. Those countries in the eurozone’s economic periphery deeply resent the austerity that has been imposed on them, while those in the north increasingly resent having to bail out those in the south. More disturbing yet, especially since 2008, Europe’s poor economic performance has undermined public confidence in its political elite, thereby contributing to a wave of populism across the eurozone.
A key factor underlying the eurozone’s poor economic and political performance was the locking in a monetary union of a poor productivity performer like Italy with a productivity powerhouse like Germany. Without the ability to devalue, Italy was bound to progressively lose competitiveness to Germany, which has resulted in the disparate economic performance between those two countries.
While useful, the institutional improvements you recommend in your editorial to the euro’s architecture will be far from sufficient to ensure the currency’s survival. Rather, for that to happen, a country like Italy will need to fundamentally reform its economy to regain the competitiveness it has lost by having been stuck in a euro straitjacket.
American Enterprise Institute,