June 6, 2011
The 17 countries of the euro zone are far from perfectly suited to share a currency. Europe's financial crisis might provide an opportunity to change that for the better.
The serious debt troubles of Greece and other European countries—which creditors, finance officials and the International Monetary Fund have been racing in recent days to contain—underscore what many economists see as a fundamental flaw in the euro area: Differences in economic cycles, languages, rules and competitiveness can make the costs of a common currency outweigh the benefits.
The flaw, though, need not be fatal. The debt crisis has created an impetus for reforms that could make the union more viable. Economists' suggestions include new rules on government spending, unified bank supervision and a bigger fund for financial emergencies. All would require European governments to sacrifice a bit more autonomy.
"If Europe takes these lessons to heart…then the euro will emerge from its crisis strengthened," said Barry Eichengreen, an economist at the University of California, Berkeley.
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