Not a bad idea
Before the euro crisis, talk of currency unions was becoming common around the world. The Gulf had a plan and there were serious suggestions for South America and Asia. Right now, exhausted European governments might advise wannabe unifiers not to bother. But if the crisis lifts and Angela Merkel’s “more Europe” ideas bear fruit, monetary unions could well come back into fashion.
There are good reasons to maintain currency autonomy, as any euro-sceptic economist can explain. When countries with their own fiscal authorities join forces monetarily, the projects can easily end in tears – especially if weak members cannot get help from strong ones in a downturn. But such discussions of “optimal currency areas” are academic. They do not take into account the persuasive power of monetary facts on the ground.
Sure, the euro zone was born too soon to survive on its own. Like an infant marsupial, a new currency needs the warmth which only a mother can provide. In Europe’s case, mum proved a bit immature. But she is much more likely to grow up for the sake of her offspring than she would if she delayed having children until she was totally ready. The crisis is forcing members of the euro zone to make some adult decisions about fiscal policy and bank support.
The delicate present health of the European single currency should not obscure its conceptual appeal. Compared to the sum of its national parts, a robust euro zone would be more efficient. It would be better able to negotiate and compete with global economic powers too. The stronger members gain access to larger home market. Weaker members are obliged to live up to high fiscal and regulatory standards.
These advantages are appealing to Bahrainis, Argentines and Thais. Each other region will have to find its own ways of moving towards monetary union.
But if they wish to emulate the euro story, they should take note of the hundreds of precursor rules that built a single market for goods, labour and capital. And realise that plenty of patience is required. Hasty constructions will surely collapse.
Predictions: Breakingviews is publishing a series of articles over the holiday that look ahead to 2012. The pieces will be collected together in the annual ’Predictions Book’, produced in print and electronic form early in the New Year.