A similar recession, but on a much larger scale, has settled in the eurozone as a whole since the financial crisis. But for rapid growth and catch-up in relatively low-income countries, the totals would have looked worse.
This wasn’t what it was supposed to be. Instead, the single currency was intended to revitalize Europe after the sclerosis of much of the 1990s. But unfortunately that did not happen, because it was based on a wrong economic concept.
Clearly, free trade did not require the abolition of national currencies, but in the eyes of Europe’s top leadership it seemed unacceptable to deepen the single market through harmonization of standards while at the same time allowing sudden shifts in national competitiveness associated with currency adjustment to continue.
The pure European concept of free trade has always been at odds with the traditional New Keynesian view that currency realignment is a natural, market-driven means of correcting competitive imbalances between economies without imposing unnecessary hardships.
Deprived of this flexibility, the eurozone’s rigidity quickly found expression in the harsh austerity measures and deep recession that accompanied the European debt crisis.
An analysis by the European Center for International Political Economy found that per capita GDP in 14 EU member states, which together account for 89% of EU GDP, was lower in 2021 than it was when the euro was launched.
France and Germany were as wealthy as the 36th and 31st US states in 2000, but 21 years later, France’s GDP per capita was less than the 48th poorest US state, Arkansas, while its GDP per capita had declined. German GDP is less prosperous than that of the United States. Thirty-eighth US state, Oklahoma.
Monetary union cannot be blamed entirely on Europe’s long malaise, as the UK has not fared much better anyway. But 25 years after its launch, the euro has failed to deliver on its economic promises.
The once life-threatening acute illness has given way to a long-term, chronic condition for which there appears to be no immediate hope of cure.