There is an overarching problem that pervades the discussion of the Euro whenever I hear finance people and economists talk about it – logic. Almost invariably, discussions of the Euro by financial people revolve around logical and rational arguments that focus on the currency’s strengths and weaknesses, the fiscal position of the Eurozone countries, etc. They talk about the Euro as if it is the same as the dollar, pound or yen. The problem is that it is not.
The dollar, pound and yen are strictly currencies – placeholders for value. The Euro, however, is two things – a currency and an idea, and this makes it doomed to fail. The Euro was pushed forward, not only to simplify trade and increase economic capabilities, but also to attempt to unite a divided continent and entwine its nations together so tightly that the problems of history wars, disunity, etc. would be shunted aside. The Euro was a building block on the path to a greater United States of Europe, whereby sovereignty would be extinguished (or at least marginalized) to the point where there would be not only fiscal union, but political union as well.
The problem with this is that it is a fantasy. The peoples of Europe have long histories as disparate groups. Germans and Spaniards have very different views of the world, as do French and Greeks. The only way that a United States of Europe becomes a reality is for organic, slow change to occur over many years to the point where the peoples of Europe feel that they are close enough together to actually form a political union. Of course, this slow process is (and was) of no interest to the elite bureaucrats in Europe, who barely believe in democracy (they just like its veneer) and seem to prefer a technocracy of unelected officials who will (of course) run things as they should be run. The ultimate evidence of this was the European constitution, where when the people did not deliver the result the bureaucrats want, they deemed the electorate to be fools and sent it right back.
Now, back to the Euro and its discussion in financial circles, the finance types who discuss the Euro tend to completely ignore the idea side of its raison d’etre. That also means that they usually fail to discuss, or give enough wait to, the issue of sovereignty. They talk about Euros as if the economic formulas and analysis that apply to currencies without the mandate to help unify a continent can be used. They can’t. The individual states of Europe are, for the time being, still sovereign and, unlike California, can always resort to abrogating their obligations. This is important because decisions about whether to stay in the Euro or leave it are driven just as much, if not more so, by political considerations, domestic needs and politicians’ desires to stay in power as they are by fiscal sense. Decisions that are seemingly stupid and would be considered incoherent were they to be taken by U.S. or Japanese policy makers make perfect sense in the context of a conclave of divided, sovereign states that each have different priorities.
In the end, the sovereignty distinction is everything. The Euro will fail, whether today or tomorrow, because it is an attempt to create political unity through a top-down system, rather than an outcome of political unity that started from the bottom up.