A Few Euros Short
The FT’s chief economics commentator, Martin Wolf, argues that, without the ability to manipulate national currencies, the EU’s poorer members are going to have a very difficult time recovering from the global recession.
As Matt Yglesias notes,
If the European Union were a country, it’d be a country in pretty good shape. Better shape than the United States in many ways. But it’s not a country. And it’s not a nation. People don’t move around the way they do inside a country. So it can’t adjust to shocks in the way that a country would. This risk was known when the Euro was created, and the bet was basically made that there wouldn’t be a giant crisis. Or at any rate that if one did come down the road it might be far enough in the future for Europe to become a much deeper form of union. But the bet’s not paying of.
It was a long-shot bet. As I explain in my New Atlanticist essay, Eurozone’s Periphery Fighting With One Hand Tied Behind Their Back, “this was not only a natural byproduct of a centralized currency but one that was widely understood from the beginning.” The European Community’s peripheral countries couldn’t be trusted to play fair or count on Germany to bail them out under the old ERM, so they agreed to the Euro.
Moving to a unified currency under a central bank alleviated this problem but at the cost of taking away monetary policy from individual states. That leaves, as Wolf notes, fiscal policy. But recessions are hardly a time for raising taxes or slashing spending.
The weaker countries, then, have no good options. And, not the least bit surprisingly, the relatively stronger economies — among them, once again, Germany — are in no mood to sacrifice the well-being of their own citizens to help out their neighbors.
The bottom line, it would seem, is that no matter how you set up the system, it’s better to be rich than poor.