By now, it’s obvious that adopting the euro was a colossal blunder. It may rank as Europe’s worst policy mistake since World War II. The virtues of the common currency — it reduced transaction costs and the uncertainty of fluctuating exchange rates among national monies — were temporary. Its vices seem permanent or, at least, semi-permanent: the mounting economic costs of saving the euro; the growing nationalism from arguing over who’s to blame.
Do not expect some magical “solution.” Europe has entered an economic and political purgatory from which there is no early escape. On paper, the crisis countries (so far: Greece, Portugal, Ireland, Italy and Spain) might benefit from abandoning the euro and resurrecting national currencies. They could then devalue these currencies, spurring exports and tourism. But in practice, this choice is dangerous and maybe impossible.
Even under the most rosy of scenarios, I see it being problematic, to put it nicely, for countries to cede control over taxes and the budgets for social programs to non-citizens sitting in Brussels. Instead of at long last bringing unity to Europe, discord arising from resentment and conflicting loyalties will end up pushing the nation states farther apart. And that is if things go well!