U.S. economist Milton Friedman’s aphorism – „What is unsustainable will not be sustained” – is cited frequently by those who believe market forces will eventually overwhelm the political will that holds the euro together.
Countries that share a single currency cannot devalue when their economies lose competitiveness, as occurred in southern Europe in the first decade of the euro’s existence. There is no mechanism for large fiscal transfers between member states.
So the only option has been a wrenching „internal devaluation” by countries on the periphery of the euro area, involving real wage, pension and public spending cuts and mass unemployment that has caused deep social distress.
Austerity has fueled radical forces of political protest and may be running out of democratic road – not just in Greece – but none of the alternative ways out of the euro zone’s economic divergence dilemma looks remotely plausible.
„The history of the gold standard tells us that an asymmetric adjustment process involving internal devaluation in debtor countries, with no corresponding inflation in the core, is unlikely to be economically or politically sustainable,” economic historians Kevin O’Rourke and Alan Taylor wrote in the Journal of Economic Perspectives in 2013.
„What is desirable for the euro zone may not be feasible.”
Turning the corner? Wishful thinking. „What is unsustainable will not be sustained.” I bet the eurozone will have less than half the current members in ten years, if it will still exist at all. And Poland, free from it, will emerge as a real competitor for Germany in the middle of Europe.