Thursday, May 27, 2010

When Will the Eurozone Collapse?

by Václav Klaus

Cato Institute
Economic Development Bulletin no. 14
May 26, 2010

As a long-standing critic of the concept of a single European currency, I have not rejoiced at the current problems in the eurozone that threaten the very survival of the euro. Before discussing the events surrounding the Greek debt crisis further, I must provide at least a working definition of what the word "collapse" means. In the context of the euro, there are at least two interpretations that come to mind. The first one suggests that the eurozone project or the project establishing a common European currency has collapsed already by failing to bring about positive effects that had been expected of it.

The creation of the eurozone was presented as an unambiguous economic benefit to all the countries willing to give up their own currencies that had been in existence for decades or centuries. Extensive, yet tendentious and, therefore, quasiscientific studies were published prior to the launch of the single currency. Those studies promised that the euro would help accelerate economic growth and reduce inflation and stressed, in particular, the expectation that the member states of the eurozone would be protected against all kinds of unfavorable economic disruptions or exogenous shocks.


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