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91 Foreign Aff. 105 (2012)
The Failure of the Euro: The Little Currency That Couldn't

handle is hein.journals/fora91 and id is 111 raw text is: The Failure of the Euro The Little Currency That Couldn't Martin Feldstein THE EURO should now be recognized as an experiment that failed. This failure, which has come after just over a dozen years since the euro was introduced, in 1999, was not an accident or the result of bureaucratic mismanagement but rather the inevitable consequence of imposing a single currency on a very heterogeneous group of coun- tries. The adverse economic consequences of the euro include the sovereign debt crises in several European countries, the fragile condition of major European banks, high levels of unemployment across the eurozone, and the large trade deficits that now plague most euro- zone countries. The political goal of creating a harmonious Europe has also failed. France and Germany have dictated painful austerity measures in Greece and Italy as a condition of their financial help, and Paris and Berlin have clashed over the role of the European Central Bank (ECB) and over how the burden of financial assistance will be shared. The initial impetus that led to the European Monetary Union and the euro was political, not economic. European politicians reasoned that the use of a common currency would instill in their publics a greater sense of belonging to a European community and that the shift MARTIN FELDSTEIN is George E Baker Professor of Economics at Harvard University and President Emeritus of the National Bureau of Economic Research. He was Chair of the Council of Economic Advis- ers from 1982 to 1984. This article is adapted from an NBER working paper, The Euro and European Economic Performance. [1051