The theory of Optimal Currency Area first written about by Robert Mundell had several key requirements in order for a currency union to work.
They were labour mobility, capital mobility, flexible prices and wages, similar business cycles and risk sharing that enables struggling members to get bailed out.
There is no doubt that labour is highly mobile within the EU. But there are enormous cultural and language barriers that haven’t gone away and never will. Capital is mobile, but the moral hazard involved with risk sharing has played out into “Northern” member countries having their wealth squandered bailing out “Southern” member countries.
The difference in attitudes between a German and a Spaniard with respect to work are completely different. The likelihood of an Irishman learning Polish to take advantage of work opportunities in one of the EU’s better performing member countries is trivial.
Over the past few years Germany successfully reduced its labour costs and continued to have a workforce that leaves school with very little “skills mismatch” nonsense we have in New Zealand
Most Euro zone countries have hardly budged on flexible prices and wages. Struggling countries can’t take advantage of cheaper national exchange rates because their economies are stuffed to spur any form of recovery.
Instead of earning their way out of recession, German officials are dictating to governments what they should do in order that predominantly German banks and bondholders get repaid at 100 cents on the dollar.
All the other bondholders – pension funds, retirement schemes, unit trusts and the like – are being forced to eat substantial losses on their bonds. Their losses are privatised, unlike those of “Too Big To Fail” EU banks who have cynically taken billions in additional liquidity from the ECB and parked it on their balance sheets.
Putting all examination of whether currency unions are a bad idea or not, the EU has proven beyond all doubt that they are incapable of managing a common currency and thus a common monetary policy.
Thus arguments for giving more power to EU officials and even standardising fiscal policy across member countries are so insane it is clear that EU officials are living on another planet.
Let’s recall : before the Euro there were several attempts at a “common currency”. All of them failed because no one played by the rules. The UK was one of the worst offenders at this. They paid for their sins on Black Wednesday.
The “unicorns and rainbows” theory that all member countries can sort out their mess by simply handing over the reigns of their fiscal policy and monetary policy to the unelected bureaucrats of Brussels, overseen by an incompetent and gridlocked European Parliament, needs to be examined far more closely by the media.
I regularly read opinion pieces and articles in the media that are clearly closer to European Central Bank press releases than any decent analysis of what’s at the root of all of this nonsense : the idiotic notion that an organisation that produces such varied Euro Vision contest entries could somehow co-operate on fiscal and monetary policy without making itself a laughing stock.