It pained me to write this as I have never been a Euroskeptic, but I fear the answer for Greece, Ireland, Spain, and Portugal may well be yes. These countries need both debt restructuring and a boost in competitiveness, and it is very difficult to see how they will get those while remaining in the Eurozone. The most likely alternative is economic decline and political turmoil.
Through long and painful experience, Europe’s leaders first learned that financial integration requires eliminating volatility among national currencies. Next they learned that eradicating currency risk requires doing away with national currencies altogether. Now they are learning – but resisting – the lesson that you cannot achieve monetary union, among democracies, without political union.
In other words, Europe is learning that political trilemma of the world economy applies there too. As Kevin O’Rourke tells me, “the trilemma is operating big-time in Europe right now, the obvious technical move is to federalise everything, but worries about democratic deficits etc are going to make that impossible, which leaves us with a big, big problem.”
It is a very sad story for one of this century’s boldest economic experiments.