by Patrick Appel
Matthew O’Brien spells out why the Euro is doomed:
The euro is the gold standard minus the shiny rocks. Both force countries to give up their ability to fight recessions in return for fixed exchange rates and open capital flows. But giving up the ability to fight recessions just makes it easier for recessions to turn into depressions. And that puts all of the pressure on wages to adjust down when a shock hits — the most painful and destructive way of doing things.
Avent runs with the comparison:
The gold standard was a powerful idea which delivered unquantifiable benefits and unquantifiable costs. The powerful fear of the unknown kept the gold standard intact even as the costs of Depression mounted. But once the dominoes began falling, they fell quickly. Even America, with enormous gold reserves and therefore, seemingly, a strong interest in maintaining the standard, only remained on gold for two more years after the system began to unravel in 1931. The threat that disaster might befall any euro member to drop out may continue to keep economies in line. But America represents a wild card that wasn’t present in 1931: a very large and very rich economy not on the prevailing standard and not suffering for it. The gap between the euro zone and America is the counterfactual, the but-for path, that helps illustrate just how damaging the single currency has been. Leave the euro area and you may not immediately spring back to that alternate path, leaders around the periphery may think, but at least you’ll stop sinking, and you can sell your wares to the world’s healthy economies at a steep discount relative to your neighbours.