The euro’s future

Greece remains in the monetary union – for now

Ten years ago a common currency for most of continental Europe came into existence. The hope was that the euro would be the glue that would bind disparate economies into an economic force that could compete with the United States, and with looming China.

There were admission standards, as countries could not have budget deficits beyond a certain percentage of their gross domestic product. England would say no to participating, believing it had the economic strength to go it alone and valuing the legacy of its pound notes.

And while the initial value of the euro in terms of a dollar slipped to something like 85 cents, in recent years it has been at $1.20 to $1.40 or so. The currency was working, and out of it came the very competitive jointly created Airbus line of passenger planes and high-speed rail service.

Other efforts to reduce the economic impediments among participating countries were put in place. A common passport was established, and immigration and customs border stops were ended. From the southern tip of Italy to the English Channel, goods, services and tourists traveled relatively freely.

But each country continued to set its own budgets with unique tax levels, entitlement spending and degrees of investment in education and business development that were shaped by culture and history. Across its member countries, the euro was on a very uneven platform.

Greeks have little discipline when it comes to paying taxes. For Italians, taxes have a bitter taste. It was invaders who demanded taxes from the multitude of city states now called Italy.

Portugal’s mid-20th century economy was returned to almost 19th-century levels by a dictator too long in power.

In Spain, it has been the recent collapse of real estate values – similar to what occurred in the United States – that has undermined that country’s banking institutions. A vacation house in Spain was appealing to those living in rainy and cold wintertime England, and an unsustainable building and financing boom occurred.

In recent weeks, the French have elected a president who claims the country’s partly corrective austerity measures can be revoked; in Greece, a presidential candidate makes the same promise.

Polling indicates that almost all people in the eurozone want the zone to continue, but in the voting booths, those with the greatest shortfall are not eager to assert their responsibility for setting the economics right. Understandably, work hour, wage and pension reductions are painful.

There is no specified method to exit the eurozone. But proposals for a return to the drachma, for Greeks, and to the lira, for Italians, would allow currencies to be set to match their country’s productivity and economic health.

A shrinking of the eurozone will not come in weeks, but it will come. The weakest countries will fall away. To hold them together would require taxes and spending to be set not by legislatures but by a multi-country league and not likely to be accepted.

Long term, after those with the highest deficit spending have corrected their economies, rejoining would be possible. That may be the best that can be hoped for.