'The Euro Can't Survive in Its Current Form'

Spiegel
August 31, 2011

Historian Hans-Joachim Voth gives the euro only another five years unless the euro zone is transformed into a full transfer union with massive redistribution. The continent is too culturally different to warrant a single currency, he says, adding that it would be best if Germany and other stronger economies left the euro zone.

SPIEGEL: Professor Voth, how much longer do you think the euro will survive?

Voth: Five years. The euro can't survive in its current form. We could, of course, make a full-fledged transfer union out of the euro-zone countries, complete with euro bonds and massive fiscal redistribution. In that case, we would have a different euro than the one that was originally conceived and promised to German voters. In the end, if the heads of state and government don't want that, it's likely that the euro will have to be dissolved.

SPIEGEL: Why can't the euro survive?

Voth: Even bad economic arrangements can be kept going for a long time. But the real questions are: Whom does that help? How long can one stand the pain? And what's the use? The euro can technically survive, but so can the never-ending attacks on the bond markets that are increasing the pain. But that just exacerbates the fundamental problem: that the main shock absorber has fallen away in the countries with very rigid labor markets …

SPIEGEL: … because these countries can no longer manipulate the values of their currencies to meet their individual needs.

Voth: Before, if Spain had gotten stuck in the kinds of difficulties it has today -- unit labor costs are too high, growth is too low, and there is enormous unemployment -- the peseta would have simply been devalued by 20 percent. In those days, Spain only had to change a single price -- that of its currency -- in order to make itself competitive again, and the market would generally help out as well. Cars could keep on being built in Pamplona and Seville. Houses on the Costa Brava were still affordable. There were no forced wage cuts in Spain, and prices remained stable. That's it.

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