Sunday, May 9, 2010

A United States of Europe?

I am in Germany to teach a short-course for a college on economic policy. The current Euro crisis should provide some interesting discussion. There is also an election today in one of the German states that may be interpreted as a judgment on Merkel's focus on Europe rather than on Germany. From the start, the euro was a political rather than an economic move, even though there were economic reasons for moving to a common currency. I think the political motive was to force more political integration. Clearly, all of Europe is not an optimum currency area. Greece is demonstrating that.

Krugman had a piece recently in which he reconsidered whether Greece should pull out of the euro. Earlier, he opposed it on grounds articulated by Barry Eichengreen. I also found Eichengrfeen's analysis persuasive, but, like Krugman, am having second thoughts. Recently, Mankiw also entered into discussion on the issue, with some pertinent comments.

On many occasions when I have visited Europe, I have asked people whether they wanted the EU to eventually be a United States of Europe. Uniformly, the response to that suggestion is horror. Yet, the elites in Europe who helped organize the EU in the early years, and still exist in the governments of major members (France and Germany in particular), want a United States of Europe. The current crisis may push things one way or the other, and I am not certain yet which way.

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