One Euro, One Europe (One Love)

First up, from Playing for Change | Song Around the World, a Bob Marley/Curtis Mayfield song:

One Love

And from Inference Review:

One Euro, One Europe
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The Greek government-debt crisis began in October 2009. In its aftermath, numerous books and articles have been published predicting the breakup of the eurozone, the monetary union between nineteen of the twenty-eight European Union (EU) member states. Commentators have proposed a variety of reasons why such a breakup might occur: a public-debt crisis, the collapse of Italy’s banks, the European Central Bank’s (ECB) expansionary monetary policy, accelerating inflation in southern Europe, the rejection of austerity measures, insufficient fiscal integration, the election of euroskeptic parties, or even a war among the major international currencies. The complexity of the TARGET2 system used by the central banks to make transfers within the eurozone has also been cited.¹ Increasing balance differences between creditor and debtor central banks would inevitably lead to the implosion of TARGET2 and the euro.

The adoption of a common currency comes at a cost: a single currency establishes a fixed exchange rate system among the member states.² In the case of the eurozone, this is dependent upon sufficient deposits being held by the Economic and Monetary Union (EMU) to absorb the externalities of the euro—factors affecting the euro that are not reflected in market prices. Can this arrangement be maintained? Writing in 2014, Jens Nordvig offered a prediction for the future prospects of the eurozone.³ As part of his analysis, Nordvig noted that between the years 1918 and 2012 a total of sixty-seven monetary unions were formed. The eurozone, Nordvig believes, will share their fate.
They all failed.

The Inflationary or Deflation of the Euro
In his recent book, L’euro: comment la monnaie unique menace l’avenir de l’Europe (The Euro: How the Single Currency Threatens the Future of Europe), Joseph Stiglitz condemned the anti-inflationary mandate of the ECB:

In the case of Europe alone, the cumulative loss due to the financial crisis amounts to thousands of billions of dollars. Nobody, not even the most ardent defender of the ECB’s focus on inflation, could make sense of this figure. The bank’s priorities were wrong, but it was not the fault of the ECB: its mission was focused on inflation, it was doing what it had been told to do, quite simply.⁴

He also offered an alternative solution for managing the 2008–2009 financial crisis:

If wages and prices had risen in Germany, the value of the euro would have fallen, and the countries affected by the crisis would have become more globally competitive. This method would have been much more effective: the costs borne by Germany would have been lower than those imposed on countries in crisis.⁵

Stiglitz’s proposal would have had no practical effect. His implicit criticism that the ECB implemented an insufficiently inflationary policy is nonetheless significant. This overly restrictive policy is, in fact, the supposed cause of the 2008–2009 crisis.

Philipp Bagus, on the other hand, is suspicious about the support among the traditionally inflationary Latin countries for the euro and the creation of the ECB:

The governments of the Latin countries, especially France, considered the euro an effective means of getting rid of the abhorred deutschmark. The deutschmark was, before the introduction of the euro, the standard that exposed the mismanagement of irresponsible governments. Although the Bundesbank inflated the money supply, it was producing money at a slower pace than the countries, especially those in southern Europe with high inflation rates, that used a central bank to finance their deficits more generously. The exchange rate against the deutschmark served as a point of reference and comparison. The governments of the inflationary countries feared this comparison with the Bundesbank … The euro was advantageous for the Latin countries in that inflation could be continued while the direct proof of an appreciating deutschmark had disappeared. Hidden inflation could continue.⁶

The irreconcilable views of Stiglitz and Bagus are reflective of the philosophical differences between Keynesians and monetarists regarding the role of money. For John Maynard Keynes and his successors, relative levels of consumption and savings remain constant, and households determine consumption primarily according to their income. Levels of economic activity and employment are dependent on demand, which could, in turn, be encouraged by printing money. For the heirs of Jean-Baptiste Say, such as Milton Friedman, Friedrich Hayek, and Ludwig von Mises, money only has value if it can be used to buy other goods; the value of the goods does not depend on the quantity of money, but on all the other goods available. Monetary creation may have an effect on the nominal prices of goods, but not on their real value....MUCH MORE