Euro Birthday Blues: As its twentieth anniversary approaches, was the currency fatally flawed from the start?

• Author: Lachman, Desmond

Twenty years ago, on January 1, 1999, the euro was launched with the highest of political and economic expectations. Today, its twentieth anniversary is being commemorated amid deep disappointment at its economic and political results, both dismal.

This has to raise questions anew as to whether the euro might have been fatally flawed from the start. It also has to raise doubts as to whether the euro is likely to survive the next global economic downturn.

HIGH HOPES

The euro's architects had high hopes that its launch would substantially improve Europe's economic prospects. By minimizing transactions costs, it was hoped that the introduction of a single currency would promote intra-European trade. It was also hoped that by increasing competition among member states, the euro would force countries in the eurozone's periphery to radically reform their sclerotic economies.

Beyond providing economic advantages, the euro's architects hoped that it would promote deeper European political integration and institution building. They also hoped that it would constitute a challenge to the U.S. dollar's dominance as the world's international reserve currency.

DISAPPOINTING ECONOMIC RESULTS

It would be an understatement to say that the euro has not delivered on its economic promises, especially since the 2008 Lehman crisis. Whereas over the past decade the U.S. economy has grown by some 15 percent, the overall eurozone economy has barely recovered its precrisis 2008 peak level.

Meanwhile, far from narrowing the economic disparity between the eurozone's prosperous north and its sclerotic south, those disparities have increased. As an example, while Germany's economy is now some 10 percent above its pre-2008 crisis peak, the Italian economy remains around 5 percent below that peak. This is not to mention the Greek economy which is barely recovering from an economic depression that has been worse in both severity and duration than that experienced by the United States in the 1930s.

The euro has also failed to deliver on its founders' lofty hopes that it would in time supplant the U.S. dollar as the world's international reserve currency. In reflection of the euro's poor economic and political performance as well as of the eurozone sovereign debt crisis, twenty years after its launch, the euro constitutes only 20 percent of the world's international reserves. That is a level little changed from that prevailing at its launch.

INCREASED POLITICAL DISUNITY

As...