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EDITORIAL: Death of the euro

The future eludes the spendthrift Europeans

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Our European cousins are just now figuring out that ditching their marks, francs, liras and drachmas to join the eurozone may not have been such a hot idea after all. Every time a member nation gets in line at the bailout window, the common currency takes another hit.

Oskar Lafontaine played a key role in the creation of the euro in 1999 as Germany's finance minister. He now calls for a change in course, arguing that the European Union is heading toward "disaster," and a breakup of the currency is critical to the recovery of Southern European countries.

The euro was expected to be the daily public symbol of a monetary union, the next logical step in the economic integration of Europe, the conclusion of the painful process of rebuilding from the rubble of World War II. Securing the four freedoms for the Continent's internal market — free movement of goods, capital, services and labor — was the European Union's greatest accomplishment. Maintaining a monetary union without achieving a fiscal union is its greatest failing.

Eurozone nations share the same currency, and they must trust that their neighbors — politically independent governments with significant differences in economic structure — will adopt fiscal polices that maintain the euro's value. It was a proposition doomed to failure from the start. Many economists said so.

Germany and Greece share little in common, but they were placed in the same fiscal straitjacket. Greece is heavily dependent on tourism, but the tourists started booking flights to other places after a visit to the ruins of the ancient world was no longer a bargain on a cheap drachma and became a pricey excursion on an expensive euro. Greece quickly lost its competitive edge. Without the ability to devalue its currency, Greece could do nothing to recover.

That irritated the thrifty Germans, who had to subsidize Greece to preserve the union. Greeks knew this, so politicians in Athens saw no need to endure the pain of putting their house in order. They could have all the benefits of an oversized government and bloated public sector while the Germans and others picked up the check. The eurozone itself is responsible for the structural problems that created the European debt crisis. Leaving the union is the first step in resolving it.

Dumping the euro would allow countries such as Greece to restore their private economies. The change in the value of the currency would make exports competitive and encourage growth. For the private sector to grow, the public sector must make room by shrinking. A mere change in currency would encourage inflation if it is not accompanied by true cuts in government spending.

The overvaluation of the euro has played a role in Southern's Europe's problems, but structural imbalance has done far more to put these economies in jeopardy. Like the Greeks, some other Europeans have spent too much and borrowed too much. They have imposed burdensome regulations that stifle innovation, competition and job creation, weakening the private sector so that it's difficult to see how the economies can recover.

The death of the euro is a good start, but the true path to growth in the European Union is fiscal discipline, not a quick monetary fix. Politicians must muster the courage to challenge the entrenched public-sector unions and derail the gravy train. Only then can a European Union prosper.

The Washington Times

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