IN OTHER WORDS...:

The End of the Euro: How the crisis in Greece could lead to the demise of Europe's most ambitious project (Niall Ferguson, 5/07/10, NEWSWEEK )

The euro seemed like such a good idea just 10 years ago. Europe had already achieved remarkable levels of integration as a trading bloc, to say nothing of its consolidation as a legal community. Monetary union offered all kinds of alluring benefits. It would end forever the exchange-rate volatility that had bedeviled the continent since the breakdown of the Bretton Woods system of fixed rates in the 1970s. No more annoying and costly currency conversions for travelers and businesses. And greater price transparency would improve the flow of intra-European trade.

A single European currency also seemed to offer a sweet trade. European countries with problems of excessive public debt would get German-style low inflation and interest rates. And the Germans could quietly hope that the euro would be a little weaker than their own super-strong Deutsche mark.

Monetary union had geopolitical appeal, too. In the wake of German reunification, the French worried that Europe was heading for a new kind of domination by its biggest member state. Getting the Germans to pool monetary sovereignty would increase the power of the other members over a potential Fourth Reich. And, best of all, it would create an alternative reserve currency to challenge the mighty U.S. dollar.

Still, when European Commission president Jacques Delors first proposed monetary union, it seemed a wildly ambitious project. Even when it was formally adopted as the third pillar of the European Union in the Maastricht Treaty of 1992, many economists—myself included—remained skeptical.

It was far from clear that the 11 countries that initially joined up constituted an "optimal currency area." A single monetary policy would likely amplify, rather than diminish, the fundamental differentials between highly productive Germany and the less efficient periphery.

But the worst defect in the design of the EMU, we argued, was that it was uniting Europe's currencies but leaving its fiscal policies completely uncoordinated.

...it seemed like a bad idea and the notion of Europe as any sort of superpower utterly ludicrous, no?

Posted by Orrin Judd at May 8, 2010 8:56 AM