The Incomplete Currency

Chapter 6Assessing the Risk of a Euro Break-Up

In the previous chapters, we studied the structural characteristics of the Euro, the functioning mechanisms of the permanent fixed exchange rate agreement and how “dysfunctional” these are proving to be, following the explosion of the international financial crisis. With some surprise, we discovered how the treaties establishing the European Monetary Union do not provide the possibility to exit the fixed exchange rate agreement (unless through the abandonment of the European Union tout court), in order to lay down the characteristics of permanence and irreversibility.

The political reasons for this choice are extremely clear: in the intention of the founding fathers of Europe, the Monetary Union was only an intermediate step towards a broader and more pervasive integration, which included progressive transfers of sovereignty by the individual States towards the Community institutions, and this roadmap did not provide for any setbacks. The obligated adoption of the Euro by the countries that have recently joined the European Union is another measure that can be interpreted in this context of increasing economic and political integration.

However, the economic and financial crisis has undermined the solidity of the euro. It has highlighted the architectural dysfunctions of the single currency, and these dysfunctions have amplified the differences between the financial conditions and between the business cycles of the Member States. ...