The Soon to Erupt Euro Experiment

by Gordon T. Long 

It was clear that an EU monetary union would require a political union to centralize decisions about tax and public spending. However, it is turning out to be even worse than originally perceived because of the euro currency.

The Soon to Erupt Euro Experiment

A shot of a loupe on a 50 dollar bill.

The EU experiment has become so damaging and divisive that public opinion won’t tolerate a political union. One reason is that it has made some countries poorer, while others got richer. Forcing many countries to have the same interest rates and exchange rate was always going to be a problem, as it would lead to some countries having booms followed by big busts, as happened in Ireland, Portugal and Spain.

It has led to the per capita income of Italians being lower now than in 2000 while in the meantime, the German economy has kept on growing, and the average German is about 20% better off over the same period. Germans keep exporting and running up a surplus, while the Italians struggle and go deeper into debt.

The freedom of movement of capital in Europe probably makes this worse. Why put your euros in an Italian bank, when you can invest them in Germany? Membership of the euro has put the Italians on a permanent path to being poorer.

The Eurozone doesn’t have the fiscal or banking unions it needs to make monetary union work. In the meantime, the euro’s flaws continue to suck countries into crisis, and their politics get radicalized out of misunderstood populist frustrations.

Long discusses the euro (a failed currency); how the eruption has been building; exploding populism; an increase in nationalism and a reversal in globalism; why there is no exit from the euro; and a gold standard vs. a fiat euro.


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