the euro dream

Harvard economist Martin Feldstein reminds us that the euro was a French project from the beginning. Germany opposed creation of the euro, but was persuaded to join the monetary union in exchange for French support of German reunification.

Establishing the EEC [European Economic Community] had favorable economic effects, but, like the North American Free Trade Area, it did not reduce national identification or create a sense of political unity.

That was the purpose of the 1992 Maastricht Treaty, which established the European Union. The influential report “One market, one money,” issued in 1990 under the leadership of the former French Finance Minister Jacques Delors, called for the creation of a single currency, relying on the specious argument that the single market could not function well otherwise. More realistically, advocates of a single currency reasoned that it would cause people to identify as Europeans, and that the shift to a single European Central Bank would herald a shift of power away from national governments.

Germany resisted the euro, arguing that full political union should come first. …. Germany eventually agreed to the creation of the euro only when French President François Mitterrand made it a condition of France’s support for German reunification. ….

The pro-euro politicians ignored economists’ warnings that imposing a single currency on a dozen heterogeneous countries was bound to create serious economic problems. They regarded the economic risks as unimportant relative to their agenda of political unification. ….

The European project has clearly failed to achieve what French political leaders have wanted from the beginning. Instead of … amity and sense of purpose …, there is conflict and disarray.

Martin Feldstein, “France’s Broken Dream“, Project Syndicate, 26 May 2012.

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