Tuesday, May 18, 2010

Will the Euro Survive?

It was only a year ago that I appeared at a conference in Montreal in which Lionel Jospin took part. Jospin's presentation was a robust defense of the creation of the euro, in which he played a fundamental role. At the time, Europe seemed to be holding its own in the financial crisis, indeed doing a bit better than the US, and the dollar was depreciating. Some reputable economists predicted it would reach $1.60 or 1.70 against the euro. But times have changed; the creation of the euro now looks to some like folly; skeptics, vindicated, are trying to restrain their Schadenfreude; and the future of the euro looks increasingly uncertain.

I confess to having been in favor of the euro, although I recognized the power of the arguments of the skeptical economists. I favored tighter European integration, and I thought that the euro was a step in that direction. But the skeptics were right about the danger of putting the cart before the horse: integration is needed in any currency union in a time of crisis. The Lord works in mysterious ways, however, and it may be that the result of this crisis is the tighter integration necessary to hold the euro together. Although that is the optimistic scenario, and I generally prefer to err on the side of pessimism, le coeur a ses raisons que la raison ne connaît pas.

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