The Cyber-Cave

Reflections on the political, technological, cultural and economic trends of the world

The Eurozone



1997- “Europe’s common market exemplifies a situation that is unfavorable to a common currency. It is composed of separate nations, whose residents speak different languages, have different customs, and have far greater loyalty and attachment to their own country than to the common market or to the idea of “Europe.”….

….The drive for the Euro has been motivated by politics not economics. The aim has been to link Germany and France so closely as to make a future European war impossible….I believe that adoption of the Euro would have the opposite effect. It would exacerbate political tensions by converting divergent shocks that could have been readily accommodated by exchange rate changes into divisive political issues.” [1]

2016- “While there are many factors contributing to Europe’s travails, there is one underlying mistake: the creation of the single currency, the euro. Or, more precisely, the creation of a single currency without establishing a set of institutions that enabled a region of Europe’s diversity to function effectively….. The eurozone was flawed at birth. The structure of the eurozone – the rules, regulations and institutions that govern it – is to blame for the poor performance of the region, including its multiple crises” [2]

2015- “It has been obvious for some time that the creation of the euro was a terrible mistake. Europe never had the preconditions for a successful single currency — above all, the kind of fiscal and banking union that, for example, ensures that when a housing bubble in Florida bursts, Washington automatically protects seniors against any threat to their medical care or their bank deposits” [3]

2012- “One point is particularly important to note in this historical context, especially since it is often missed. The problems created in the euro zone by going for the integration of currency and a monetary union without the prior supportive presence of a closer political union and a fiscal union extend well beyond economic mishaps into social adversities in the relations between people in different European countries…

…There is nothing particularly surprising about the problems of balance of payments and other economic adversities that many of the European countries––Greece, Spain, Portugal—have faced, given the inflexibility of the euro zone restrictions on exchange rate adjustment and monetary policies.” [4]

2013- “The euro should either be dismantled in an orderly way or the leading members should do the necessary as fast as possible to make it growth and employment-friendly…. The policies pursued now to steady the euro are costing Europe jobs and they are creating a lost generation of educated young people. This is not what the founding fathers promised” [5]

-2014 “If I were advising Greece, Portugal or even Spain, I would tell them to prepare contingency plans to leave the euro. There is no point being in EMU if all that happens when you are hit with a shock is that the shock gets worse…It would be very costly to leave the euro, a form of default, but staying in the euro is also very costly for these countries. The Europeans have created a system that is worse than the Gold Standard. Countries are in the same position as Latin American states that borrowed in dollars” [6]

-2016 “The euro was a mistake…if it abandons this trend [the centralisation of power], the EU could survive and flourish, otherwise, it could fail” [8]

-2012 “Spain is the victim of the economic chaos that exists in the EU…This is a crisis created in Europe. Spain is within a European context, with the obligations that his implies [the fiscal rules], in which it is impossible to make the necessary changes and investments to end a scourge like unemployment. The euro is a structural problem…The only thing that may be done now is the creation of a European fiscal union, which would lead to the creation of a European government. This would cause a democratic loss- less control of internal affairs…” [9]*

2013 – “Looking from the outside, I say that you [Italy] should not be in the euro, but leave now… As long as Italy remains in the euro, it will not be able to expand its money supply in circulation nor will it be able to devalue.” [12]*

-2012 “Before the euro was launched I was skeptical that it could succeed (see my “Forget Monetary Union-Let Europe’s Currencies Compete”, November 12, 1995, reprinted in The Economics of Life). I said, among other things, “Competition among currencies helps discipline irresponsible governments by reducing their incentives to …finance budget deficits arising from dubious expenditures, such as inefficient state enterprises… and in order to penalize and discourage irresponsible government-based monetary and fiscal policies.” Not a bad description of what ails Greece! A single currency also makes it difficult for countries to restore competitiveness to their export sector, when they are subject to negative shocks that require their wages and prices to fall relative to those of other countries…….
For the first 8-10 years of the euros’ existence, it appeared as if my concerns were misplaced since the euro performed very well. Many economists even claimed that it would eventually replace the dollar as the major international currency. The crisis of the past few years has crushed that optimism, and many now agree that it was not wise for Greece, and probably Italy, Spain, and Portugal as well, to have become part of the euro zone” [13]


-Nobel prize winner
-Considered to be ‘father’ of the euro because of its ‘Optimum Currency Area’ theory which influenced European policymakers.
-Prominent supporter of ‘supply-side’ economics during the Reagan Presidency.
-A 2012 article in the Guardian by Greg Palast (‘Robert Mundell, evil genius of the euro’) shows that the idea of rendering Eurozone politicians powerless on economic matters had always been in his mind. This is not a conspiracy theory, but simply Mundell’s belief that markets should have little regulation and that politicians should be somehow restrained from meddling with the ‘invisible hand’. In the following passage Mundell presumaby refers to the creation of an independent Central Bank outside national authority like the ECB and of the strict budget rules in the Eurozone:
It [the euro] puts monetary policy out of the reach of politicians… without fiscal policy, the only way nations can keep jobs is by the competitive reduction of rules on business….Monetary discipline forces fiscal discipline on the politicians as well.” [15]

2) ERIC MASKIN (Nobel prize winner in 2007) agrees with Mundell that, in the Eurozone, bureaucrats should be in charge of fiscal policy rather than politicians [11]. Eric Maskin, however, has criticised austerity and has also shared his view on the euro in 2012: “I think the biggest engineering flaw in the euro zone is not the welfare state, but the monetary and fiscal integration. The euro zone have centralized monetary policy, but did nothing to centralize the fiscal policy. So today, first, we must do the fiscal integration. That includes to make decisions on the welfare state. Obviously, it doesn’t make sense to have seventeen different welfare policies on the ground” [10]

2005- “I have always considered that a monetary union should be… the completion of the realisation of a European Economic Union and that from this point of view the creation of the Euro has been premature” [14]

-2014 “Historians are going to tar and feather Europe’s central bankers…Young people in Spain and Italy who hit the job market in this recession are going to be affected for decades. It is a terrible outcome, and it is surprising how little uproar there has been over policies that are so stunningly destructive [on austerity]” [7]

– 1996 “Freely floating exchange rates are the means whereby adaptations are made to disparate price level trends in different countries and trade imbalances are brought into line with capital flows appropriate to increasing the overall productivity of capital. Fixed exchange rates or rates confined to a narrow band can be maintained only by coordinated fiscal policies among the countries involved, by imposing efficiency-impairing tariffs or other restraints on trade, or by imposing costly disciplines involving needlessly high rates of unemployment, as is implied by the Maastricht agreements…..

….Restraints on exchange rates, such as are involved in the Maastricht agreements, would make it virtually impossible for a small open economy, such as Denmark, to pursue an effective full-employment policy on its own. Much of the increase in purchasing power generated by a stimulative fiscal policy would be spent on imports, spreading the stimulating effect over the rest of the monetary union so that Denmark’s borrowing capacity would be exhausted long before full employment could be achieved. With flexible exchange rates the increased demand for imports would cause a rise in the price of foreign currency, checking the import increase and stimulating exports so that most of the effects of an expansionary policy would be kept at home.” [18]


1) JURGEN STARK (former ECB official): “We have to think the unthinkable. And it is already unthinkable to think about the restart of Europe, which means we have to be creative…. taly was accustomed to this ongoing devaluation of the lira from the mid-Seventies until the late Nineties. Maybe they need devaluation and their own currency in order to become more competitive again…

In the long run, in the context of a European reset, one has to discuss the issue of whether it is still appropriate to keep these countries with different economic structures and different economic performances together. There is no convergence anymore…..
We have had divergence rather than convergence… from the very beginning” [16]
In this speech (delivered in 2017 at an event organised by ETF securities), Stark suggested that the currency area could be split into a two-speed Eurozone.
Stark also criticised the ECB’s QE and negative interest rates policy.


-2017 “The euro exchange rate is, strictly speaking, too low for the German economy’s competitive position” [17]

NYT ARTICLE: Worries Grow Over Euro’s Fate as Debts Smolder in Italy and Greece

[7] ibid
[8] *
[9] *My translation into English from an article originally in Spanish
[12] *My translation into Italian from an article originally in Italian

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