Wall Street Journal
September 6, 2011
On the Continent, August is usually reserved for long vacations in the sun. Instead, European leaders spent the month working on increasingly desperate attempts to save the euro in its current form. There's only one prospect more frightening than what would happen if they fail: what would happen if they succeed.
This is not hyperbole. The euro is an idea built on economic and political dishonesty, at the heart of which lies a flaw that the currency's architects never dared to address: Given that the euro zone's economies are so different, how could a single interest rate possibly apply to all of them? And how could these countries, having surrendered monetary policy, continue to control national public spending and therefore the size of their deficits and debts?
These points might have been moot if the monetary union had also been a fiscal union from its inception. This would have required that the euro system include a framework of tax transfers, such as America's or Australia's, whereby the federal government redistributes funds to weaker states from stronger ones.
The alternative, of imposing collective fiscal discipline in a currency union of sovereign states, each answerable to its own electorate, could only have been achieved by subordinating the will of democratically elected politicians and their voters. Until now, even EU mandarins have been unwilling to go this far. That's why the fiscal rules stipulated by the euro's founding Stability and Growth Pact were destined from the start to be ignored: To do otherwise would have been blatantly anti-democratic.
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