Old euro currency system sceptics are coming out of the woodwork with I-told-you-so grins these days.
That’s because the current European crisis is damning proof of their old argument that a single currency isn’t sustainable if it is shared by multiple different nations each with independent economic policies. The euro system seemed to work for a while, but now we have discovered that problems were mounting all along.
Thus to save the euro there’s only one, difficult solution — The United States of Europe. The idea is actually catching on:
EUObserver: The recent financial crisis has also served to highlight the multitude of structural flaws embedded in the wider EU economy, with the bloc’s permanent president, Herman Van Rompuy, amongst those advocating a European ‘economic government’.
Yet with EU leaders recently indicating that a euro area bailout for Greece would be available if needed, some in Europe feel the tide is moving in the direction of greater co-ordination. Amongst them is Edouard Balladur, a former centre-right French prime minister and close associate of President Nicolas Sarkozy. “We are at a crossroads,” he told French daily Le Figaro on Wednesday. Mr Balladur believes each eurozone member should have to submit its annual budget to the 16-country bloc for majority approval.
There’s little choice really over the long haul. The currency union was supposed to normalize economic differences between member nations, aligning their economies in sync, yet the opposite has happened according to Edin Mujargic, an economist at ECR Euro Currency Research. Thus without greater cooperation, problems will get even worse.
“The fact that interest rates in the euro area started too low has led to imbalances in southern European states,” he stressed, pointing to Spain’s current account deficit as an example. He agreed however that economic co-ordination is what is needed. “If we don’t establish some form of economic government, I wouldn’t be be too optimistic for the survival of the euro area.”
Sure, Eurozone nations might be able to patch up their current system and make things work for another 10 years. But if they want the euro to survive the next few decades, then they better prepare for the inevitable One Europe future.