In the 1980′s and the early 1990′s  I worked in the International Banking Division of a large regional bank in Western Pennsylvania.    A large part of my responsibilities was in the area of  “foreign exchange” purchases and sales.  Because of that experience, I have found particular interest  in the fate of the relatively “new”  European currency, the euro.  Prior to the  time of the euro’s creation,  Western Europe had risen from the ashes of the Second World War, and had become an inter-connected, economic powerhouse comprised of many small nations.  These sovereign nations knew that their ability to compete with external economic powers, such as the United States and Japan, was dependent upon a free flow of capital and labor between their borders.  They also knew that their ability to co-operate and to compete was being hampered by the need for each individual country to maintain its  own separate currency, its own separate Central bank, and its own separate fiscal and monetary policy.  Out of pure economic necessity, the euro was born, and the sixteen nations comprising the newly created EU, agreed to scrap their individual currencies and to use the euro as a common “currency of exchange”.

Although all the nations of the EU knew the hidden perils of sharing a currency while maintaining their own national sovereignty, most economists thought that the benefits of expanded economic activity brought about by the euro would outweigh the loss of  flexibility in maintaining separate currencies.  Over the last twenty years or so, the economic prognosticators have been correct;  Europe has flourished.  The deep, world-wide economic recession, starting in 2008, however, has put a strain on the EU, and consequently on the euro, that no one had anticipated.  For the first time since the euro was created, many economists are beginning to think the “unthinkable”; that perhaps the breakup of the “euro zone” may be the only way for the strong nations within the EU to survive.

Well known and highly respected economic analyst Roger Bootle, from Capital Economics,  recently said that the threatened breakup of the euro zone, which many people see as a potential disaster, would actually open the door to renewed economic growth, not just for the weaker members of the zone, but for Europe as a whole.  For example, Greece’s  debt crisis has driven down the euro and forced governments from Spain to Italy to institute austerity measures, significantly clouding their outlook for recovery for many years to come.  On the other hand, an abandonment of the euro would help Germany restore a strong Deutsche  Mark, which would expand its ability restore economic growth.

Although it is yet to be seen whether the euro will be scrapped, the notion of a common currency among a group of sovereign nations will remain  fundamentally flawed.  In a sense, the euro, like socialism, looks good on paper, but will not work over the long run.  Just like socialism, the poor will eventually sap the vitality of the wealthy.  I say good riddance to the euro; let each nation stand or fall on its own merits, and benefit or suffer from its own economic policies.

Rich