In 1997, the Chicago School guru and Nobel laureate Milton Friedman eerily foresaw the challenges that a common European currency would eventually face through the following decade. “The drive for the euro”, he wrote that year for Project Syndicate, “has been motivated by politics, not economics. The aim has been to link Germany and France so closely as to make a future European war impossible, and to set the stage for a federal United States of Europe. I believe that adoption of the euro would have the opposite effect. It would exacerbate political tensions by converting divergent shocks into divisive political issues.” Fast forward to two decades later and the Euro, although severely challenged by the sovereign debt crises of the 2010s, is still alive and kicking. The “divergent shocks” that Friedman warned about have indeed caused tensions within the Eurozone, and yet the European Union (EU) has successfully overcome them through sheer political initiative. The Euro’s landmark achievement has been to survive the 2008 financial crisis, the subsequent eurozone crisis and the rise of euroskeptic parties across the continent. But has it met the objectives it was set up to achieve? Has the Euro made Europe’s economy more robust and more convergent? On its 20th anniversary, we reflect on the Euro’s past and future with two eminent economists, both of whom have been writing about it since long before it reached our wallets: Jean Pisani-Ferry and Barry Eichengreen.
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