Project Syndicate
May 18, 2010
The late Milton Friedman said that a common currency – that is, a monetary union – cannot be sustained without a deep form of economic and political union. By this, he meant an open economy that ensures the free flow of goods, labor, and capital, together with a disciplined central fiscal authority and a strong central bank. The latter two are pillars of a strong currency. They work in tandem. But the other pieces are no less important.
The eurozone, currently wrestling with fiscal imbalance and sovereign debt risk, has a strong and autonomous central bank, but is fiscally fragmented and only partly unified politically.
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