by Milton
Friedman
Penned in
1997, the late professor Milton Friedman, argued the drive for the Euro was
motivated by politics not economics, aiming to make a future European war
impossible. He said that adoption of the Euro would have the opposite effect.
Here's what he wrote:
The United States is an example of a
situation that is favorable to a common currency. Though composed of fifty
states, its residents overwhelmingly speak the same language, listen to the
same television programs, see the same movies, can and do move freely from one
part of the country to another; goods and capital move freely from state to state;
wages and prices are moderately flexible; and the national government raises in
taxes and spends roughly twice as much as state and local governments. Fiscal
policies differ from state to state, but the differences are minor compared to
the common national policy.
Unexpected shocks may well affect one part
of the United States more than others -- as, for example, the Middle East
embargo on oil did in the 1970s, creating an increased demand for labour and
boom conditions in some states, such as Texas, and unemployment and depressed
conditions in others, such as the oil-importing states of the industrial
Midwest. The different short-run effects were soon mediated by movements of
people and goods, by offsetting financial flows from the national to the state
and local governments, and by adjustments in prices and wages.
By contrast, Europe's common market
exemplifies a situation that is unfavourable to a common currency. It is
composed of separate nations, whose residents speak different languages, have
different customs, and have far greater loyalty and attachment to their own
country than to the common market or to the idea of "Europe". Despite
being a free trade area, goods move less freely than in the United States, and
so does capital.
The European Commission based in Brussels,
indeed, spends a small fraction of the total spent by governments in the member
countries. They, not the European Union's bureaucracies, are the important
political entities. Moreover, regulation of industrial and employment practices
is more extensive than in the United States, and differs far more from country
to country than from American state to American state. As a result, wages and
prices in Europe are more rigid, and labour less mobile. In those
circumstances, flexible exchange rates provide an extremely useful adjustment
mechanism.
If one country is affected by negative
shocks that call for, say, lower wages relative to other countries, that can be
achieved by a change in one price, the exchange rate, rather than by requiring
changes in thousands on thousands of separate wage rates, or the emigration of
labour. The hardships imposed on France by its "franc fort" policy
illustrate the cost of a politically inspired determination not to use the
exchange rate to adjust to the impact of German unification. Britain's economic
growth after it abandoned the European Exchange Rate Mechanism a few years ago
to refloat the pound illustrates the effectiveness of the exchange rate as an
adjustment mechanism.
Proponents of the "Euro" often
cite the gold standard era from 1879 to 1914 as demonstrating the benefits of a
common currency. But the gold standard also had its costs. The period was
characterized by declining prices from 1879 to 1896, rising prices thereafter,
and sharp fluctuations within each period, especially severe in the 1890s. The
standard was viable only because governments were small (spending in the
neighborhood of 10 per cent of the national income rather than 50 or more per
cent as now), prices and wages were highly flexible, and the public was willing
to tolerate, or had no way to moderate, wide swings in output and employment.
Take away the rose-colored glasses and it was hardly a period or a system to
emulate.
As of today, a subgroup of the European Union
-- perhaps Germany, the Benelux countries, and Austria -- come closer to
satisfying the conditions favorable to a common currency than does the EU as a
whole. And they currently have the equivalent of a common currency. Austria and
the Benelux three have, to all intents and purposes, linked their currencies to
the Deutschmark. However, these countries still retain their central banks and
hence can break the link at will. Any country that wishes to link to the
Deutschmark more firmly can do so on its own, simply by replacing its central
bank with a currency board, as some countries (such as Estonia) outside the EU
have done.
The drive for the Euro has been motivated by
politics not economics. The aim has been to link Germany and France so closely
as to make a future European war impossible, and to set the stage for a federal
United States of Europe. I believe that adoption of the Euro would have the
opposite effect. It would exacerbate political tensions by converting divergent
shocks that could have been readily accommodated by exchange rate changes into
divisive political issues. Political unity can pave the way for monetary unity.
Monetary unity imposed under unfavorable conditions will prove a barrier to the
achievement of political unity.
The late Milton Friedman was professor of
economics at the University of Chicago and a fellow at the Hoover Instituion at
Stanford. This article was first published August 28, 1997.
Πηγή:
afr.com
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