The Euro’s Broken Promises

I really liked this comment by Bloomberg Europe Economist Maxime Sbaihi on the purpose of the Euro:

=> The point of the euro was to give Greece the interest rates of Germany, and Germany the exchange rate of Greece. pic.twitter.com/bGtW1QNGC7

— Maxime Sbaihi (@MxSba) December 1, 2015

That’s precisely right.  Of course, Germany has basically gotten the better end of the bargain here. After all, were the peripheral countries not still involved the Euro would be much higher relative to all other currencies than it presently is. So, Germany has benefited from a Euro that is lower than it otherwise would be.  Hence their relatively strong economic environment.

But the Euro has not held up the other end of the bargain.  By unifying the monetary system there was supposed to be solidarity. That is, after all, the only purpose of a monetary “union”. The USA benefits from low interest rates, reserve currency status and economic strength through diversification.  Europe has no such thing thanks to the fact that their monetary union is not really a union.  It is, at best, a fragmented union as if each state in the USA were issuing its own bonds tied to their own undiversified productivity with significant single entity default risk.

I had been increasingly confident that this would all work itself out with time and we’d start to see greater unity across Europe.  But I have been saying that for 5 years now and I am becoming more concerned about how realistic this view is. The thing is, there’s no middle ground here.  And as someone smarter than me once said, half begun is half done. The Euro is only half begun so it is not done. And if they’re not going to finish it with a full monetary union then they might as well just halt the charade once and for all.