Tuesday, October 2, 2012

The Neglected Strengths of the Euro

With very few exceptions, the literature about the euro produced outside of Continental Europe, since its inception, suffers from a striking amount of selective bias. The literature also suffers from a tendency to rely heavily on association fallacy, attributing almost automatically to the euro the responsibility for any problem that is common to countries in its area, such as the difficulties created by fiscal excesses of welfare states. Evident strengths of the euro institutions, on the other hand, are simply ignored or waved away as trivial.

The selective bias manifests itself sometimes as the omission of relevant positive information. An example is the recent announcement by the French socialist government that it is now committed to austerity. This is coming from a government that had heavily campaigned against austerity just a few months ago.

Such a political overturn would be an extremely improbable event in countries with national central banks. It is entirely driven by the restrictive framing built into euro institutions, framing that the UK, for example, has always rejected. In my fiscally conservative opinion, this is an incredible social and economic achievement for the euro economies, one that cannot be reproduced, at this moment, in other advanced economies because they remain stuck in the age of monetary nationalism.

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