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The Euro and Europe's Welfare State, or How the Eu

SAN FRANCISCO: Hidden behind the euro's falling exchange rate is a life-and-death struggle between it and Europe's welfare state. Either the euro subverts the welfare state, or Europe's welfare state will subvert the euro. Despite today's weakness, smart money should bet on the euro.

The euro's disappointing performance - falling from a value of a $1.18 at its inception to a recent low below $.90 - is in large part due to Europe's reluctance to adopt structural reforms to increase economic flexibility. ECB Chief Economist Otmar Issing writes: "Germany and other European Union countries share the blame for the euro's weakness because they failed to make their economies more flexible."