Great Graphic: Diverging Growth--Is it the Euro's Fault?

This Great Graphic was found on the Economist's blog Free Exchange in a post titled "What the euro has meant". Under the impression that the charts speak for themselves, with little analysis, the author concludes that most of the euro area would have been better off being the US or Great Britain, even in per capita terms. Seeing how obvious this is the author is stumped by the fact that there is not a bigger push to leave the monetary union. 

While the charts are interesting, the inference is weak.  First, there is an all too common logical fallacy on display here.  Just because the charts begin with monetary union does not mean that the monetary union caused what came afterwards.  Second, surely to make some assessment of what EMU has wrought, a review of the economic performance before EMU is required.  

US growth, for example, generally outstripped European growth in the two decades before monetary union.   Italy and Portugal's competitiveness problem, for example,  was evident before monetary union. To lay the blame  at the feet of EMU seems wrong and disingenuous, though plays into popular prejudices.  Although monetary union was over-determined (Europe's own post-WWII strategy, the problems with the European Exchange Rate Mechanism--ERM-- and political factors related to the reunification of Germany when the Berlin Wall fell), one of the incentives was to boost the competitiveness of Europe to compete with what the French called the hyperpower (the US).  

Any discussion of a country exiting the monetary union needs to come to some understanding of why the country joined in the first place.  That the euro area is not an optimal currency zone was well known before it was launched.  The US itself was clearly not an optimal currency zone for most of its history and some would argue that the continental economy is too diverse and is still not an optimal currency zone.  It cannot be understood abstracted from the political and historical context.   

In summary, we offer three corrective points to the Economist post.  First, it is not clear that Europe's growth problems began with monetary union.  Second, the problem of competitiveness would still bedevil countries if they left monetary union.  Third, the reasons for monetary union cannot be simply reduced to a homo economicus calculation.    This implies that the failure of EMU to resolve the economic challenges countries face is in itself insufficient to spur defection.  

Great Graphic: Diverging Growth--Is it the Euro's Fault? Great Graphic:  Diverging Growth--Is it the Euro's Fault? Reviewed by Marc Chandler on May 18, 2013 Rating: 5
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