CHAPTER TEN
The European Periphery
A Modern-Day Gold Standard
Europe exemplifies a situation unfavorable to a common currency. It is composed of separate nations, speaking different languages, with different customs, and having citizens feeling far greater loyalty and attachment to their own country than to a common market or to the idea of Europe.
—Professor Milton Friedman, The Times, November 19, 1997
There is no example in history of a lasting monetary union that was not linked to one State.
—Otmar Issuing, Chief Economist of the German Bundesbank in 1991
The countries of the European periphery are falling like dominoes due to too much debt. Greece required a bailout from the European Union and the IMF in May 2010. Ireland required one a few months later in November 2010. As we write this book, Portugal and Spain are next in the sights of the speculators. Much like the subprime crisis in the United States took down the mortgage lenders first, then Bear Stearns and then Lehman Brothers, the problems of too much debt are threatening to bring down European states.
During the good years, Portugal, Ireland, Italy, and Greece enjoyed the benefits of being in the euro, but now all the imbalances that have built up over time need to be redressed. This chapter deals with how these countries got there, what the current problems are, and possible ways out.
The Euro: A Suboptimal Currency Union
It may seem obvious to state it, but Europe is not a country. Europe is many things. It is ...
