Tuesday, May 03, 2005

The €uro - A Currency union at risk?

Is it possible to have a monetary union without a political union? This remains a question without a definitive answer.
Asks and answers the FT in an editorial today. Currency unions not backed up by political union have a very, very poor record of success but I guess the FT doesn't want to discuss that, instead they concentrate on ....
.... another, more immediate concern. It is whether a currency union can work in countries without a flexible market economy. On this, current European rhetoric and performance begin to raise disturbing doubts.

The Financial Times goes on to castigate the populist stances being taken by politicians in France and Germany, and discuss the ills of the "Italian Patient". Finally they conclude that:
The only hope for future success is acceleration of market-oriented reforms. Rigid economies will put huge pressure on the monetary union itself. What is at stake in the eurozone's big countries is too important to permit such infantile populism.

All italicised quotes from - A currency union needs markets

Reading the above linked article one might well conclude that the €uro is at risk from the fact there is no central political power that can push through market orientated reforms. The opening question comes back to haunt us -
Is it possible to have a monetary union without a political union?

The answer is clearly NO. To suggest the question is "without a definitive answer", as the FT does, is to duck the question.