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."

But there is a world of difference between the euro's need to tame the welfare state and its ability to do so. Harvard economist Martin Feldstein, indeed, believes that "the single currency will be a political impediment to reform." "Politicians", writes Feldstein, "can now blame the ECB for high unemployment and complain that it is a powerful force beyond national control."

To continue reading, please log in or enter your email address.

To read this article from our archive, please log in or register now. After entering your email, you'll have access to two free articles from our archive every month. For unlimited access to Project Syndicate, subscribe now.

required

By proceeding, you agree to our Terms of Service and Privacy Policy, which describes the personal data we collect and how we use it.

Log in

http://prosyn.org/jNrNhdg;

Cookies and Privacy

We use cookies to improve your experience on our website. To find out more, read our updated cookie policy and privacy policy.