Writing an article on the fate of the eurozone in recent times has been something of a fool's errand. No sooner has the ink dried on the page, or the printer whirred into life, than a news bulletin will sound out, announcing another fall in the markets, another eurozone member to be downgraded, another political statement aimed at restoring confidence. It is hard sometimes to keep up.
The irony, though, is that any number of people predicted this exact scenario over two decades ago, when the euro was little more than a dream for the most ardent of Europhiles. Even while the rules for the euro were being created, they were simultaneously being broken. The Treaty of Maastricht set out five requirements for member states wishing to join the euro – of the 11 countries to join; only Luxembourg passed all five. Then came the stability and growth pact, soon jettisoned when it got in the way. And the no bail-out clause? Well, it almost seems comical in light of recent events. It is exactly this kind of fiscal indiscipline that has led us to our present parlous state. A political project, powered by political will, to achieve political ends. If the economics get in the way, dump the economics.
What the eurozone doomsayers knew when they were making their predictions back in the nineties was that a "one-size-fits-all" monetary policy was totally impractical for a group of such diverging economies. Take Ireland, for example, whose economy was already booming when it adopted the euro. With accession to the eurozone came low interest rates and a flood of cheap money, a housing and construction boom, and the eventual catastrophic bust. High interest rates would have made money more expensive and would have cooled the overheating property market, averting disaster – but the Irish exchequer had given up all control of its monetary policy in order to dance to the tune of the Germany-focused European Central Bank.
Read the rest of the article on the Public Service Europe website.
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