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The euro
June 2010

There was never any serious prospect of the eurozone quickly becoming an optimal currency zone. The Greeks will not soon start manufacturing high-tech machinery, speaking German or sitting the Abitur exam when they are 18. Germans are unlikely to develop sufficient fellow-feeling with Greeks to fund their featherbedded lives in government departments. But never mind all that. What concern is the dismal business of economics for those with a grand vision? The European Project must not be stalled by the forces of division. Like love, the goodwill of great men can conquer all.

Some will say I am being unfair to the euro's creators. In recognition of the economic challenges, did they not insist on all eurozone countries signing up to the Growth and Stability Pact? This is like arguing that King Canute's chance of turning back the tide was really not so small since, after all, he was wearing a golden crown. 

Nothing better illustrates the preposterous economic power politicians imagine for their edicts than the Growth and Stability Pact. Among other things, it stipulates that no country will run a fiscal deficit in excess of three per cent of GDP. Here are some eurozone deficits: Greece 13 per cent, Spain 11 per cent, Portugal eight per cent. 

The now standard view, expressed by The Times, is that the current crisis shows that monetary union requires fiscal union. To hold together the euro over the long run, national tax and spending policy will need to be centralised in Brussels. Since this is the kind of thing the European integrationists are imagined to have wanted all along, some see the absurdity of the current eurozone arrangement as part of a cunning plan. 

Yet this is merely fantasy. European states will never give up control of their domestic government spending. The eurozone will remain a calamitously suboptimal currency zone costing Europeans hundreds of billions to hold together and keep alive a glorious delusion. 

More than 1,000 years after Canute's courtiers were disappointed by the tide, reality remains resolutely disobedient. 

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June 3rd, 2010
7:06 PM
Agreed. But the obstacles to the survival of the Euro are even greater - and more intangible, too. European economic union, with no matter how many bells and whistles, will not work without a European nation. Only this would allow the depressed regions to acquiesce in long-term depression. I've written more here:

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