Making the European Monetary Union
Harold James 17 February 2013
Recent policy and academic debates have begun to influence Eurozone reform. But how sound is the advice we give out? This column argues that calls for a Eurozone or full-fledged EU superstate are overstated. Yes, developing an adequate system of European banking supervision is a matter of urgency if we hope to tackle the threat posed by an overdeveloped and opaque financial system. But calling for a superstate misunderstands the reasons politicians introduced the euro in the first place.
It is often claimed – especially but not only by US economists – that the travails of the euro show that it is impossible to have a monetary union in the absence of a political union, and that Europe is necessarily embarking on a US-style experiment in federalism. Thomas Sargent used his Nobel Prize speech to urge Europeans to follow the model of Alexander Hamilton (2011). Likewise, Paul de Grauwe recently stated the case quite simply: “The euro is a currency without a country. To make it sustainable a European country has to be created” (2012).
Economic history EU institutions
Eurozone crisis, Bretton Woods, German surplus