The Euro as a Dysfunctional Marriage
Published: June 2021
This article examines the functioning of the euro area with emphasis on the desirability of its further enlargement. This is based on theoretic research regarding optimal currency areas, empirical studies on the euro area in the past 20+ years, as well as historical experiences of two monetary unions in Europe in the late nineteenth and early twentieth centuries. The discussion highlights a number of problems in the euro area’s design and documents the damage caused—especially in the periphery (southern) countries. Consequently, the analysis implies that it would be too risky for the seven countries on the accession list (Bulgaria, Croatia, Czech Republic, Hungary, Poland, Romania and Sweden) to adopt the euro at this point. It is also argued that in most of these countries voters do not seem to be sufficiently informed to adequately assess all the pros and cons of euro accession. The article concludes by outlining structural reforms that could in principle alleviate the euro area’s key problems, and potentially make its enlargement desirable in the future.