LONDON – Ten years on, the euro is a resounding success. A financial-market heavyweight, it now outperforms the dollar, the yen, and, until recently, the mighty Chinese yuan, while euro-denominated bond trading rivals the US market in size.
But Europe should be doing better. It should act with greater imagination to unleash more genuine economic freedom and competition, stop championing national enterprises, and start giving the European Central Bank more support. Euro-zone policymakers should also seize the initiative in the world’s key economic clubs.
In particular, members of Europe’s economic and monetary union should give up their seats in the G-7 and the International Monetary Fund. There may be some justification for each EMU state to be represented in the G-8, but not in the main economic organizations. If they volunteered to act collectively at these forums, Europe would free up much-needed space for other important countries at the top table of world economic discussions, which would foster greater respect for global policymakers.
Internally, euro-zone “success” can best be measured by the yardstick of economic growth. Many commentators cite the wide disparities between euro-zone members’ growth rates as a sign of failure. But many other single-currency areas, including the US, display similar divergence. It should also be obvious that, in the absence of currency markets to act as a “valve” for economic and financial pressures, economic volatility may increase.