Why the Euro is essential to the future of Europe: Part 1 – It’s not the euro stupid!

Summary:

Recently, high-level officials in important European countries have begun to suggest that their economies should withdraw from the Economic and Monetary Union (EMU) and re-establish their national currencies. Unfortunately, these suggestions betray such a profound ignorance of the nature and role of the euro within the context of the European project, and of the structural realities of the world economy, that they are breathtakingly irresponsible.

Most European countries lost effective macroeconomic sovereignty long ago -long before the euro came into existence-. It therefore makes no sense to entertain fantasies that born-again national currencies in Europe could resolve economic problems through the recovery of a national macroeconomic sovereignty which, in real effective terms, was lost long ago.

The single currency and the ECB's common monetary policy are not part of Europe's problem, but rather an essential part of any answer to Europe's burgeoning economic challenges. However, the euro and the ECB are not sufficient by themselves to make the euro zone economy operate efficiently, nor are they sufficient, by themselves, to recapture for Europe a degree of collective macroeconomic policy sovereignty. As it now stands, EMU is also incapable of contributing to higher productivity growth and saving the European welfare state from complete destruction.

For the euro to successfully achieve all these goals, other supplemental policy reforms must be undertaken rapidly, before it is too late. Unfortunately, the most important of these policy reforms -labour market reform and more effective European economic governance and fiscal policy coordination- face stiff obstacles to their realisation.