We are in the final stretch of economic diplomacy before the European Council summit at the end of June is supposed to agree reforms to strengthen the euro. Cue growing tension as deadlines loom to strike a compromise, as well as inflating grandiloquence about the historic chance of completing the Europe’s monetary union. But the formulaic rhetoric that goes with the territory is not good for clear thinking; it could lead us to forget what the whole point of the exercise is. What does “completing” a currency actually mean, and what (and why) is the “convergence” that is supposedly indispensable?
In the first of a series of Free Lunches on eurozone reform, let us take time to specify which problems we need to seek solutions for. Otherwise, we can hardly judge in a few weeks’ time whether the summit outcomes will have been a success or a failure.
Most importantly, we should pour cold water on any idea that the euro’s success is synonymous with strong growth and prosperity in all its members. There is little reason to think that a currency regime by itself is a strong determinant of economic growth. That some currency arrangement should reform imperfect policymakers and political leaders into economic geniuses is unrealistic. That it should force economic improvement by short-circuiting democratic and political processes altogether is undesirable. This is true everywhere — if the US president ruins his country’s economy, no one will blame the dollar — and it should be recognised as true in Europe, too. Do not blame the currency for problems that are not for it to solve.