a12a120346f86f680e571b05_pa3484c.jpg Paul Lachine

The Euro Catalyst

With structural reforms underway in the eurozone countries hardest hit by the global financial crisis, Euroskeptics say that the crisis itself, not the euro, catalyzed change. But, given past European experience, there is serious reason to doubt that, in the absence of the euro, the crisis alone would have provided the necessary impetus to reform.

PARIS – In 2000, shortly after the launch of the euro, I wrote a book arguing that countries adopting the common currency should be forced in one way or another to implement structural reforms. Ten years later, where do we stand?

Surprisingly, the first country to reform was Germany. Thanks to an environment favorable to export-oriented firms and, most notably, to wage discipline, Germany began to post significant balance-of-payment surpluses. This is evident today on a dramatic scale, and is sustaining German economic growth, and one of the lowest unemployment rates in Europe.

The story is markedly different in other eurozone members. The “PIIGS” (Portugal, Italy, Ireland, Greece, and Spain) greatly benefited from the euro, thanks not only to the removal of currency-related trade barriers, but also because their interest rates suddenly fell to levels unthinkable in pre-euro times.