Decade After Introduction, Euro Struggles
MICHELE NORRIS, host:
From NPR News, this is ALL THINGS CONSIDERED. I'm Michele Norris.
ROBERT SIEGEL, host:
And I'm Robert Siegel.
The global economic downturn created a few winners and plenty of losers - among the latter, Greece. Its economy is a shambles and now threatens the stability of the euro. And that has many people wondering: 16 countries, separate governments, separate languages - can they, should they share a single currency?
David Kestenbaum with our Planet Money team reports.
DAVID KESTENBAUM: If you traveled in Europe before the euro, I bet somewhere in your house you have unspent coins and bills of all colors and sizes; maybe the Greek drachma, the French franc, the Deutsche Mark.
Barry Eichengreen, an economist at the University of California, Berkeley, said, in a sense, that was the argument for switching to the euro: All those currencies were a pain.
Professor BARRY EICHENGREEN (Economist, University of California, Berkeley): What was difficult for the American tourist was even more difficult for Europeans moving around the continent and for European business, which had to change money and gauge in transactions in all these different currencies. And what makes it even more complicated is that the value of the currencies could change. Exchange rates can move.
KESTENBAUM: But those pretty bills and coins, they were a powerful tool. They meant each country had its own currency and its own central bank for controlling the amount of currency. So if the economy was sluggish, the Central Bank of Slovenia could basically print more, get more money out there, encourage lending. And the fact that currencies could fluctuate in value, that had benefits too.
Ken Rogoff is an economist at Harvard and former chief economist at the International Monetary Fund.
Professor KEN ROGOFF (Economist, Harvard University): If a country is running into trouble, having your own currency and exchange rate that can go down in value - make your goods more competitive - it's very helpful.
KESTENBAUM: So take Greece. The government has been overspending; its economy is a wreck. If Greece had its drachma today, the drachma would be a wreck also. Its value would drop, making Greek products cheaper for people paying with other currencies, more tourists would travel to Greece, foreigners would buy more Greek olive oil, helping the economy self-correct. But, of course, Greece doesn't have its drachma. It's stuck with the euro.
Prof. ROGOFF: It really is an existential crisis for the euro.
KESTENBAUM: So is there an example where a bunch of different governments all live happily with one currency? There is, and you're living in it: The United States of America. It's right there in the title; not 16 but 50 different governments. Fifty states all under one currency, the dollar. Barry Eichengreen says when Europe was weighing whether to do this, they said, look at the U.S., it works there really well.
Prof. EICHENGREEN: They looked at the United States and said we have a competitive advantage over them. Why were American companies doing better than European companies in the 1950s, they asked. Well, there were various reasons, but one they said is these American companies have the advantage that they can do all their business in dollars.
KESTENBAUM: So why does a single currency work in the United States but not so well in Europe? Ken Rogoff says one reason is it's easier to move around over here. If one state is struggling, has, say, high unemployment, people can rent a truck, pack up the family and the dog and move to another state where there is work.
Prof. ROGOFF: Labor is much more mobile across states than across countries in Europe.
KESTENBAUM: People move between states about twice as often as Europeans change countries. One reason, we have another thing Europe lacks: A common language.
Prof. ROGOFF: You could scoff at that. But goodness, if you're Greek and you only speak Greek, it's not so fun to move to Germany.
KESTENBAUM: And Rogoff says, unlike Europe, we are bound together by a strong central government. We don't let states overspend the way Greece does, and we help out states when they're struggling with unemployment benefits and programs like Medicaid. In Europe, all the countries are kind of on their own.
Prof. ROGOFF: What they've done is they bound themselves together with their currency, but they haven't done everything else to make it into a true union.
KESTENBAUM: Barry Eichengreen thinks it's unlikely the euro will actually go away. The reason isn't political. It's logistical. If you want to pull out, you'd have to print your own currency, change all the coin machines in the parking lots, change contracts, change taxes.
Prof. EICHENGREEN: They're stuck with the euro, I was going to say almost certainly, but let me say certainly. I don't see how it's feasible to wriggle out.
KESTENBAUM: But he says the last 10 years have been one big, fat Greek party and that can't go on.
David Kestenbaum, NPR News.