Taken as a whole, the European Union, not the United States, is the world’s largest economy; the European Union is fully coequal with America in the running of the global trading system; Europe is the world’s most important source of foreign aid; and Europe is, whatever some Americans may think, a crucial partner in the fight against terrorism. A troubled Europe is bad for everyone else.
In any case, the odds are that the current tough-it-out strategy won’t work even in the narrow sense of avoiding default and devaluation ”” and the fact that it won’t work will become obvious sooner rather than later. At that point, Europe’s stronger nations will have to make a choice.
It has been 60 years since the Schuman declaration started Europe on the road to greater unity. Until now the journey along that road, however slow, has always been in the right direction. But that will no longer be true if the euro project fails. A failed euro wouldn’t send Europe back to the days of minefields and barbed wire ”” but it would represent a possibly irreversible blow to hopes of true European federation.
So will Europe’s strong nations let that happen? Or will they accept the responsibility, and possibly the cost, of being their neighbors’ keepers? The whole world is waiting for the answer.
Yeah, yeah. Shell out more of their own citizens’ tax euros to pay for other governments’ stupidity. A really honest way of forging the EU.
On page 5 of this overly long tutorial, Krugman answers for himself why the euro was a bad idea to begin. The fluctuations in currency values tend to correct for economic downturns. If Greece had its own currency, its value would fall making imports to Greece very expensive thus discouraging importation. Exports from Greece would be very cheap for its neighbors which would encourage companies to increase production for export reducing unemployment and stimulating the Greek economy.
In short, the euro has robbed Greece of its natural mechanisms for recovery. The euro has forced Greece to trade in a currency that mirrors not its own economic health but that of Germany.
The price that Germans have to pay for keeping all Europe on a currency tagged to its national economy is huge payouts to irresponsible countries like Greece.
The exhaustive (and exhausting) article missed out one crucial element: popular support. The EU has moved towards federalism by stealth. No government in any of its constituent nations has been elected on a platform of overt federalism which would override national sovereignty. On the few occasions when the people were consulted (France, the Netherlands, Ireland the first time) about the new federalist EU constitution, they voted No. Which more or less put an end to further consultation of the people. Surely without a mandate from the people, without their confidence and their assent, closer European integration is doomed. Government by a Euro-oligarchy is a depressing concept.