In November of last year, an economic research paper appeared on the website of the European Commission’s Economic and Financial Affairs section entitled The euro: It can’t happen, It’s a bad idea, It won’t last. US economists on the EMU, 1989-2002. It’s by Lars Jonung and Eoin Drea. There are 2 ways to read it.
One is an intellectual history of the attitudes of US-based economists to the Eurozone project from inception to it being up and running. The second is, as the Americans would say, a spike of the football in the endzone in the faces of the defensive players after a touchdown has been scored (“We find it surprising that economists living in and benefiting from a large monetary union like that of the US dollar were so sceptical of monetary unification in Europe”). In other words: the Euro worked, and the American economists thought it wouldn’t. And the title suggests that some element of the 2nd reading is intended.
Now one awkward thing about this is the timing. November 2009 was not exactly the time to be claiming that silly American economists were too wedded to optimal currency area theory to see the wisdom of the Eurozone. But instead of belaboring this point, take a look at another superb Martin Wolf column in the FT and his bracing conclusion –
When the eurozone was created, a huge literature emerged on whether it was an optimal currency union. We know now it was not. We are about to find out whether this matters.
And whether that matters is ultimately a political decision. To dig into the pop culture well, the US-based economists who form the sample in the Jonung-Drea paper were giving the Star Trek answer: “Damn it Jim I’m an economist not a politician.” Looking at the predicament of Ireland, Greece, Spain, Portugal, and Italy, they may still be right.