Euro it makes sense... or not

The European single currency is having a slight crisis. Since the global credit crunch (what an over-used catch-all lazy moniker that is, plus it doesn't really mean anything) buggered up financial markets good and proper in 2007, some eurozone economies have been struggling in the resulting downturn and recession, saddled with massive budget deficits resulting from an all too voracious appetite for cheap credit (governments and individuals alike).

My point here isn't to go over just how the Greek economy got itself into such a mess, even though anachronisms such as a state retirement age of 53 (yes, fifty three) are worth a mention. My point here is that the euro itself is in very serious trouble. And how did it get to be in so much trouble? Because it was almost certainly doomed from the start.

Let's be clear, as a tourist, I love the euro. I think it's fabulous. We live close to the Belgian border and only this morning we were in Belgium shopping. I adore the fact that I don't have to do any mental arithmetic (good thing, cos I find sums hard without a pencil and paper), or rush to the nearest cash machine to get currency, whenever we travel to Belgium, Germany or elsewhere in the eurozone. How marvellous.

So, great for tourists and also, to an extent, for businesses. But bad for economies. Right from its beginnings, my big misgiving about the European single currency has been the "one size fits all" economic policy approach. It's a bit of a risky strategy, after all. Applying the same central bank interest rates and economic governance policies to economies as disparate as Germany's and Portugal's, Denmark's and Greece's, or Belgium's and Ireland's is never a wise move. How can you expect the same central bank baseline interest rate to suit an economy like Luxembourg's, growing at 5.4% (in 2005) with that of Portugal's, growing at 0.9%? Or control a 1.4% inflation rate in The Netherlands just as well as a 3.2% rate in Spain? Of course not. Central economic policies don't usually manage to suit all regions within just one country, never mind economies from 16 different countries.

On top of this not-ever-so-bright central banking approach, add the question of solidarity between nations. Observe the distinct displeasure amongst Germans about having to stump up 22bn euros to get the Greeks out of bother. It's understandable, after all. And that is why monetary union is such a difficult thing to get right. It's not just about minting some new coins and printing off some pretty new banknotes with forrin writing on. It needs for the taxpayers in all member states to be willing to shore up another country's economy. And that is somewhat complicated. If it was easy, the Greek crisis would never have reached the stage it has now.

Photo credit:

http://www.flickr.com/photos/loop_oh/ / CC BY-ND 2.0