Eurozone at a Crossroad: Politics Confronts Economics

Abstract

Eurozone (and implicitly the whole EU) finds itself at the crossroad. Economic “dynamism” of the last few years resulted in the growing differences between the Northern European “core” centered on Germany and the Mediterranean countries plus Portugal and Ireland. The key for the explanation of the rising differences in the economic dynamism between the European “North” and “South” is the understanding of the existence of two economic and social models within the original eurozone countries. Under the given circumstances, it would make sense to restructure the Monetary Union so that the each (currently) member country has a monetary policy suitable to its economic reality. However, the economic logic notwithstanding, the Eurozone member states remain firmly committed to its current form, albeit with minor adjustments in operational procedures The answer to this “mystery” lies in the fact that the Euro was, first and foremost, the political creation and basically remains so. It follows that the key to the Eurozone’s survival is the political commitment. The political interests of member countries dominate the economic logic.