The Eurozone is underrated: reforms are still needed, but the system works a lot better than the conventional wisdom maintains.

• Author: Moller, Jorgen Orstrom

Since the outbreak in 2008 of the global financial crisis, a number of economists have written the euro's obituary. Eurozone members, however, adjust to economic shocks as do the U.S. and British economic and monetary unions, but differently.

In the United States, adjustment takes place through exchange rate flexibility, reduction of wages, worker layoffs, and federal transfers. For members of the eurozone, however, currency rate changes are ruled out by definition. There is less focus on regaining competitiveness through cuts in wage levels, and fiscal transfers are smaller; the emphasis is thus on domestic restructuring of the economy. Each model is anchored in societal structure, political conditions, and history. Probably both models are viable, and both monetary unions may be wise not to have opted for the alternative version of how to adjust.

Over the ten-year period from 2005 to 2015, Eurostat figures reveal per capita income (purchasing power parity) in the United States fell from 160 to 145 (EU 2005=100). The eurozone (nineteen member states) fell from 110 to 106, doing marginally better percentage-wise than the United States. Looking at the eurozone members hit by the crisis, the following picture emerges: Greece has unsurprisingly experienced a steep drop in per capita income compared to eurozone average (93 to 68). The other weak countries have done better than conveyed by mass media. Spain fell from 100 to 90, Italy from 109 to 96, and Portugal from 82 to 77, while Ireland after a dip in 2009-2013 saw an increase from 147 to 177. The United Kingdom registered a fall from 117 to 108--percentage wise marginally better than Italy, but worse than Spain and Portugal not to mention Ireland; substantially only beating Greece.

The eurozone presents a much more balanced economy than does the United States, United Kingdom, and Japan. For 2017, the International Monetary Fund forecasts EU GDP growth at 1.9 percent, which is slightly below the U.S. forecast (2.1 percent) but higher than the forecasts for the United Kingdom (1.7 percent) and Japan (1.3 percent). Statistics in the weekly edition of The Economist report that the eurozone runs a surplus on the balance of payments of 3.1 percent compared to a deficit for the United States of 2.6 percent and the United Kingdom of 3.1 percent. Public debt has risen almost along parallel lines from 2008 to 2015. A combination of lower deficits and growth in the eurozone promises a substantial reduction in the debt-to-GDP ratio through 2016 and 2017. According to The Economist, the 2016 deficit in public finance was 1.9 percent of GDP for the eurozone, 3.2 percent for the United States, and 3.7 percent for the United Kingdom. For 2017, the eurozone deficit looks to be 1.4 percent, compared to 3.5 percent for the United States and 3.6 percent for...