Monday, May 10, 2010

More On The Euro

Megan writes:
This is sort of the question I had this weekend, watching this gigantic new bailout effort unfold. I understand the tactical and even the strategic value of each individual move. But the goal of all of this eludes me. Is the euro really so marvelous that it must be saved at all costs? How much do France, Germany, etc really get out of Greek euro membership?

FLG is really glad he posted the conversation he had with his coworker today. Particularly this part:
If Greece defaults, the euro could unravel. And in the short run, there'd be problems. But trust me, the motivation to protect the euro is largely a political desire among European elites to keep political integration going. If this fails, then the entire European project fails.

Again, the idea of Europe as optimal currency area is not entirely nonsensical. But FLG thinks that the purpose of the euro was to portray Europe as optimal currency area. To create a justification for allowing labor mobility in policy, even if there are cultural and linguistics problems in reality. To justify continent wide regulations. To create a tangible European thing that could be seen and touched and handled everyday. If the euro falls apart, then so does the EU and the European project. Maybe not immediately, but its demise will be avoidable.

So, no. It doesn't make sense if like Megan you are looking at it through the prism of the best economic course. It does make sense if you realize the dream of Europe as a single political and economic entity will cease to exist.

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