The euro is a unique and unusual construction whose viability is now being tested. Otmar Issing, one of the fathers of the common currency, correctly stated the principle on which it was founded: the euro was meant to be a monetary union, but not a political one. The participating states established a common central bank, but they explicitly refused to surrender the right to tax their citizens to a common authority. This principle was enshrined in Article 125 of the Maastricht Treaty, which has since been rigorously interpreted by the German constitutional court.
The principle, however, is patently flawed. A fully-fledged currency requires both a central bank and a treasury. The treasury need not be used to tax citizens on an everyday basis, but it needs to be available in times of crisis. When the financial system is in danger of collapsing, the central bank can provide liquidity, but only a treasury can deal with problems of solvency. This is a well-known fact that should have been clear to everyone involved in the euro’s creation. Issing admits that he was among those who believed that “starting monetary union without having established a political union was putting the cart before the horse.”
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