'Single currency experiment has been a disaster' admits economist Stiglitz

&gt; Stiglitz points his finger squarely at “the fatal decision to adopt a single currency, <i>without first providing the institutions to make it work”.</i><p>The second part of this quote means something quite different from what the headline implies. He isn&#x27;t advocating an end to the single currency, he wants stronger institutions, which the Eurosceptics have undermined at every opportunity.

Anyone who did an economics 101 class could predict that forcing such diverse economies with populations reluctant to move to richer parts of the union into a single currency would result in net wealth reduction. [1]<p>Even the bureaucrats in Brussels knew about this. It was still pushed through because they wanted to accelerate the political union via the currency union, ignoring the financial costs. What they did not expect was the US subprime crisis to hit europe that hard and that early.<p>[1] <a href="https:&#x2F;&#x2F;en.wikipedia.org&#x2F;wiki&#x2F;Optimum_currency_area" rel="nofollow">https:&#x2F;&#x2F;en.wikipedia.org&#x2F;wiki&#x2F;Optimum_currency_area</a>

One of the surprising things in history is how well the Dollar has worked out, and I think it&#x27;s probably very instructive to study it.<p>The U.S. Dollar has a long and surprisingly complicated history as it worked its way up to becoming the official currency of the U.S., and at each stage, there was some <i>reason</i> for it to move forward to unification.<p>For example, the U.S. civil war was one of those reasons. Before the war, the U.S. had standardized coinage, but not paper money. After the war the U.S. ran, effectively, two different currencies that exchanged between each other (coins and bills). After dropping the gold standard, the exchange between the instruments was pegged at 1:1.<p>But before this, paper money was issued by local banks, exchangeable for some weight in silver (or other precious metal) coinage. Notes taken from one region to another devalued simply because of distance from the issuing bank. At one point there was thousands of different kinds of paper bills in circulation, and several kinds of coinage (Spanish, Mexican, U.S., etc.)<p>I think as Europe slowly gravitates towards some kind of unified system, it would have been far better for blocks of nearby or economically similar countries to each adopt locally unified currencies and controlled, as a block, exchange, duties, interest rates, etc. Thus we should have had a West Euro, Greater Pound, Romancis, New Rubles, Drachmas, New Thalers, etc. and then another couple steps of intermediate currencies and economic blocs.<p>Furthermore, the overlapping optional unification layers: EU, Eurozone, Shengen, NATO, etc. was also a mistake. Economic, political and other ties really need to be accepted all at once. Partial acceptance hasn&#x27;t worked as well as might be expected, and has only introduced complexity and confusion over who gets say in what (these things are all deeply interconnected).<p>The unification experiments in Europe are noble, and are supposed to prevent future crises, but when met with real crises (both internal and external) has shown that the system put in place is overly fragile and not as normative as had been hoped.

Here&#x27;s what Milton Friedman said about it in <i>1997</i>: <a href="http:&#x2F;&#x2F;www.greekcrisis.net&#x2F;2012&#x2F;08&#x2F;the-euro-monetary-unity-to-political.html" rel="nofollow">http:&#x2F;&#x2F;www.greekcrisis.net&#x2F;2012&#x2F;08&#x2F;the-euro-monetary-unity-t...</a>

This claims the differences in language and culture provide enough friction to keep people from migrating efficiently throughout the union. This seems at odds to me with what has happened in the EU (especially Britian) - many who voted for Brexit seem to have done it because they felt overwhelmed by the foreign hordes.

The Euro project has basically demonstrated that a common currency ia not possible sustainably without an fiscal union - ie. Willingness to underwrite each others debt and transfer wealth from richer to poorer areas.<p>A fiscal union requires a true political union and it is very doable given the right political stimulus - the most successful recent major example being India which unified dozens of princely states (a couple of them merged forcefully) and provinces speaking dozens of languages and having wildly different cultures into a federal political union - the unifying political stimulus being throwing out the British :-)

&quot;The Telegraph finally admits left-wing economist had it right all along.&quot;

So his idea is that, if the common currency did not exist, eurozone would be better. Yet, the most affected people (the Greeks) are staunch supporters of the Euro, and willing to suffer for it.

The problem with economists is you get a different answer to the same question depending on their political leanings. No wonder it&#x27;s called the dismal science.