Europe: denial or misplaced values? Europe’s problem is simple to see and it’s just as easy to see why all these fixes fail. When you fix the symptom you don’t cure the disease. In this case curing the disease probably will involve killing the patient (the euro). Competitiveness differences within the Zone are too wide and are too entrenched to deal with without undermining the very basis of the Zone, which is to defend the single currency. Letting currency (or country) parities readjust is the only real solution. The price level differences in Europe are so severe that they cannot be handled by ‘internal devaluation’ otherwise known as deflation. Asking a generation of people to undergo deflation to keep the euro intact is a bad case of misplaced values. And that is where Europe is right now. It is upside-down and backwards. It is no wonder Europeans can’t find a solution. You can go through the haystack with the best scientific equipment and powerful magnets but if there is no needle there you will not find one. And the EMU is simply looking in the wrong haystack because it does not want to, and the IMF does not want to, face up to the real problem.
It’s unsolvable in the context of a single currency zone. That’s what it is.
When economic forces are pulling your currency zone apart you can’t keep it together without stopping the forces that cause those tectonic plates to drift apart. Expressions of unity won’t do it. Raising taxes won’t do it. Big Bazooka funds won’t do it. The Zone keeps looking for a fix in the wrong haystack and that just won’t do it either. In the end to fix the problem you must break up the union.
Period.
It’s not because of costs or because it is better for country X.Y or Z. It’s because if EMU does not do this things just continue to get worse.