History says that political union is the essential glue of any currency union.
This invariably entails a centralised system of taxation and public spending.
It offers a way to deal with economic disruptions that have an uneven effect across the currency zone.
A shared fiscal policy automatically directs support to where the economic hurt is greatest.
The coronavirus is one such “asymmetric shock”. It hit Italy and Spain first, and hardest, within Europe.
A country with its own money could in principle absorb such shocks through a weaker currency or with a monetary policy tailored to its needs.
This is not possible in a currency union.
The commitments of a shared currency are not easily shaken off. The complexity of the financial super-structure built upon the euro makes break-up a terrifying prospect.
The Economist 25 April 2020
It offers a way to deal with economic disruptions that have an uneven effect across the currency zone.
A shared fiscal policy automatically directs support to where the economic hurt is greatest.
The coronavirus is one such “asymmetric shock”. It hit Italy and Spain first, and hardest, within Europe.
A country with its own money could in principle absorb such shocks through a weaker currency or with a monetary policy tailored to its needs.
This is not possible in a currency union.
The commitments of a shared currency are not easily shaken off. The complexity of the financial super-structure built upon the euro makes break-up a terrifying prospect.
The Economist 25 April 2020
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