Italy and the End of the Euro

American Thinker:

At the time Italy joined the European Monetary Union (EMU) in 1999 on its way to full-fledged membership in the eurozone in January 2002, economists debated whether this never-tried-before experiment will succeed or not. One of the most compelling debates at the time was between two giants of monetary thought, Robert Mundell and Milton Friedman. Mundell, who is occasionally referred to as the ‘father of the euro’, for having laid out the theoretical foundations of a common currency, was optimistic, Friedman, the opposite.

Friedman is now dead while Mundell is 85, but the events in Italy may be bringing us closer to a resolution of the argument. So it is worth remembering the key points made by the two luminaries. Mundell, of course, pointed out the numerous and rather obvious benefits of a common currency, such as the dollar in the United States, Friedman believed that the “political consequences of a monetary area that is not coterminous with a political entity” would result in instability. He also believed that Europe had too many rules and regulations and lacked sufficient economic freedom to make the experiment successful. More fundamentally, though, he argued that the euro was an effort to achieve political objectives by economic means and that, more than anything else, doomed it to failure.

Today, with an euro-sceptical government in power in Italy, the first such government in a EU founding member, we may be close to finding out who was right. Unfortunately, the argument that has flared out in the aftermath of the swearing-in of the Lega – 5 Star government in Rome has been anything but civil. Partisans of the latter have accused Germany of crushing Italy’s economy and even of pursuing Nazi domination objectives in Europe by other means, while the Germans and European Commission president, Juncker, just as hysterically have slammed the Italians for being lazy, undisciplined and profligate. The factual information backing these wild accusations may go a long way to providing an answer to the likely outcome of the conflict. And here, the Italians have most of the data working in their favor. Not necessarily, proving that they have been a victim of economic manipulation by others, but explaining why most of them feel that way.  more here