The euro was never about economics. Instead, European leaders believed that a single currency was a significant step toward creating an irrevocable alliance among countries on the continent. It was a wishful and reckless fantasy.
Experts warned that the euro could be destabilizing unless accompanied by further political and fiscal union. Since that did not happen, the currency union has been vulnerable to financial panics, and subject to the will of Europe’s most powerful economies: Germany and France. Germany has especially benefited from the euro: able to rack up huge trade surpluses which would have been impossible without a single currency.
With individual currencies, any country with a widening trade surplus would have its national currency appreciate through the exchange-rate mechanism; thus, rebalancing trade by making its exports more expensive for others and imports less so for itself. The German taxpayer would have had no need to write checks to the Greek government for its mismanagement. All Germans would have to do to exploit a weakening drachma was head to the Greek islands for a vacation or buy inexpensive Greek products.
The International Monetary Fund, which ladles loans to Greece and other nations-in-need, recognizes that the eurozone simply cannot work in its current form. Greece is bankrupt in all but name, and it is not alone. The only way to achieve Greek debt sustainability is through fiscal union – an arrangement which would essentially mean continuing subsidy by wealthier EU countries to poorer ones.
Such unity is what economists have long foretold as the only way to run a single currency regime; what northern EU leaders hoped for back in the rosy 1990s, but came to resolutely resist a decade later, as it would mean endless alms to continental cheaters and loafers down south.
The alternative is canceling at least some of Greece’s debt, but the Germans consider that a pill too bitter to swallow. As Germany is footing the bill more than anyone else, it calls the shots.
As of 2019, Emmanuel Macron had achieved the typical low level of popularity that French presidents get after a couple of years in office, owing to typical leadership incompetence. Meanwhile, German Chancellor Angela Merkel finally lost steam with her long run of behind-the-curve governing style. The new is unlikely to push for the reforms necessary for the EU to prepare for the next inevitable crisis, whether it is immigration, a military crisis on Europe’s fringes, or a shock on the Euro from debt-laden national budgets over which the EU has no control.