The euro produced divergence among European economies rather than convergence

Evidence

At the time of its launch, many economists predicted that the euro would fail. Martin Feldstein noted that the countries adopting the euro did not constitute an “optimal currency area,” where business cycles and the like would be strongly integrated such that efficiency gains could be realized. Paul Krugman saw trouble in the decade of recession and unemployment necessitated by the convergence criteria of the Maastricht Treaty of 1992, the precondition for adoption of the euro, where budget deficits, debts, and inflation rates all had to be cut at the same time. Both were correct, but what really caused problems was that instead of creating convergence, the introduction of the euro created a great divergence between European economies (see figure 3.1) in almost everything except their bond spreads and balance of payments. — Mark Blyth, Austerity, 217

Categorization

• XREF: Connects to Mattei’s austerity critique and the broader claim that a single currency without fiscal union destabilizes member states. — connects to: Euro adoption erased perceived country risk in sovereign bond yields — Mark Blyth, Austerity: The History of a Dangerous…, 220; A single currency without fiscal federalism increases divergence between member states — Fanny Pigeaud_ Ndongo Samba Sylla, Africa’s Last Colonial Currency, 347; Fixed exchange rates force austerity when competitiveness declines (+4 more)

Broader Connections

• A single currency without fiscal federalism increases divergence between member states #corroborates (0.92) — Fanny Pigeaud_ Ndongo Samba Sylla, Africa’s Last Colonial Currency, 347
• Fixed exchange rates force austerity when competitiveness declines #expands (0.78)
• Global interdependence weakened national economic control and Keynesian policy #complicates (0.72) — Anthony Giddens, The Consequences of Modernity, 188