Funny Money

Books in Review

Funny Money

By Joseph A. Harriss from the May 2009 issue

The Euro: The Politics of the New Global Currency
By David Marsh
(Yale University Press, 352 Pages, $35)

Today the global financial and economic crisis is stress-testing the euro as never before in its brief existence. Increasingly divergent rates of inflation, debt, and unemployment among its 16 users are painfully pressuring its Achilles’ heel, the one-size-fits- all monetary policy. Informed speculation is rife that one or more of Euroland’s debt-laden members like Italy, Greece, Portugal, Ireland, or Spain could default, with a catastrophic domino effect throughout the area. Such an event would bear out the skepticism of economists like Nobel Prize winner Milton Friedman and Harvard’s Martin Feldstein, both of whom early questioned the validity of a money based on politics.

In this masterful study of the euro, David Marsh is suitably Delphic in summing up its future prospects. He admits that “the euro will face the danger of fragmentation, with either strong or weak countries separating from the system” to recover more workable forms of national currency management. But he concludes prudently that it’s too early to say whether the 10-year-old experiment will end in success or failure.

Fair enough. But the bet here is that the euro will continue to exist whatever happens. Here’s why: to qualify for Euroland, EU states met stringent “convergence criteria” by notoriously manipulating statistics, cooking the books, and other creative accounting. And you may be sure that having invested this much political capital in it, the EU will fudge the figures, bend the rules, and do whatever else necessary behind closed doors to ensure the euro’s survival. That, after all, is how “Europe” works. [more]