Swiss Cheese Of The Euro - “everything ends badly: otherwise it wouldn’t end.”
In the otherwise forgettable movie Cocktail, when Tom Cruise’s character Brian Flanagan abruptly splits with his date Bonnie, she pleads with him not to let their relationship end badly. He replies “everything ends badly: otherwise it wouldn’t end.”
The turmoil in foreign exchange markets caused by Switzerland’s abrupt ending of its Euro peg may be such a bad moment for the Euro—and it comes figuratively moments before another likely bad moment, the elections in Greece on January 25th that will in all likelihood bring the anti-austerity party Syriza to power. Will the Euro, like Flanagan’s relationship in Cocktail, end badly—and abruptly—soon?
If it does, it will have something else in common with Flanagan’s
relationship: it should never have started in the first place.
Remarkably in economics, this is something that prominent economists
from both the Right and the Left of the political spectrum agreed upon.
The arch-Neoclassical Milton Friedman derided the concept of the Euro in
a 1997 article entitled “The Euro: Monetary Unity To Political
Disunity?”, while Wynne Godley—doyen of Modern Monetary Theory and
founder of the “Stock-Flow Consistent Approach” to economic
modelling—did so even earlier, in 1992.
Friedman observed that a currency union—which is essentially what the Euro is—makes sense for the United States, since:
Though composed of fifty states, its residents overwhelmingly speak the same language, listen to the same television programs, see the same movies, can and do move freely from one part of the country to another; goods and capital move freely from state to state; wages and prices are moderately flexible; and the national government raises in taxes and spends roughly twice as much as state and local governments. Fiscal policies differ from state to state, but the differences are minor compared to the common national policy.
The European Union was almost the opposite of the United States in all these respects:
It is composed of separate nations, whose residents speak different languages, have different customs, and have far greater loyalty and attachment to their own country than to the common market or to the idea of “Europe.” Despite being a free trade area, goods move less freely than in the United States, and so does capital. The European Commission based in Brussels, indeed, spends a small fraction of the total spent by governments in the member countries.
Though the Swiss announcement caught everyone by surprise, it was simply
bowing to the inevitable: given how badly the Euro was designed, the
pressure Switzerland in turn imposed on itself by trying to stop its
currency rising against the Euro was irresistible.
Cocktail, as trite as it was, was a better movie than the Euro is a currency.
