Regular readers of QT will know that we are just a bit skeptical about the European project. That does not mean that we are Euro-skeptics. To the contrary, a united Europe has already proven its value and could do much, much more. But … there is a troubling sense that Europe — as it is now — has been oversold. Political union has not followed neatly after the so called “completion” of the single market project. And BTW, we might keep an open mind whether the single market has been completed.
Case in point on political union problems — the European attitude towards the single currency and the policies that support it. There is none. It is essentially a German attitude that a strong currency with low inflation is the key to prosperity over time. But tell that to the Greeks, the Italians, the Spaniards, the Portuguese, the Irish, the Latvians, and hmmm … did I leave anyone out? I was somewhat persuaded by Krugman’s argument that the German approach imposes too much pain and offers too little gain to claim policy coherence for Europe overall. Here is a link to Paul’s article (which BTW is mainly about the Greek messtoid).
One cannot blame the Germans for pushing a German agenda. But there is no mechanism to test whether this agenda will be accepted as the correct European model over time (other than treaty revision). Thus, from a political point of view, we continue to sail in uncharted waters, knowing that the “one size fits all” currency policy is a very blunt instrument that might at some point lead to mutiny.
Would that be a disaster? Well, the US had terrible problems in its early days developing a single currency and it survived them. Though its civil war — ostensibly about slavery, but in fact, equally about states’ rights — shows that large political unions can and do explode. More recently the disintegration of the Soviet system teaches us how quickly explosions can take effect. Let us hope that in fifty years, pundits far more wise than me will call our problems with the Euro, growing pains. But meanwhile, it is frustrating not to know how to get beyond them.
Here is a link to a NYT article about the current stress in the German/French relationship due to the above. It will be interesting to see how these stresses are to be smoothed over.