The only plausible fix for the euro won’t work

A much proposed way to make the eurozone work is to turn it into a monetary, fiscal and political union. But Europe already has a single-currency area like this. It is called Britain. And that doesn't work either, says Matthew Lynn.

What does the euro need to make it work better? The conventional answer is that it needs to be turned into a fiscal union, with large-scale wealth transfers from the richer regions to the poorer ones. Of course, a caveat or two is usually thrown in. The political obstacles are formidable. The Germans might never agree to their taxes being sent to bail-out Greece or Portugal. The treaties may need to be re-written, which would require the agreement of all the European Union's members. Still, if only those obstacles could be overcome, a fiscal union would smooth out most of the problems.

The trouble is, the fundamental assumption here may well be wrong. Europe has another monetary union between countries at very different stages of economic development. It is called Britain, and the currency is sterling. The UK has a rich south and a poor north, rather than a rich north and a struggling south, but otherwise the sterling area has many similarities to the euro area. It is made up of a group of countries with very different levels of prosperity. It has huge transfers between the richer regions and the poorer. And it doesn't do any good at all. True, it holds the currency area together. But it only does so at the cost of creating regions that are ever more dependent on state aid. The truth is, a transfer union wouldn't save the euro even if it was politically feasible. Nothing will. The project is doomed.

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Matthew Lynn

Matthew Lynn is a columnist for Bloomberg, and writes weekly commentary syndicated in papers such as the Daily Telegraph, Die Welt, the Sydney Morning Herald, the South China Morning Post and the Miami Herald. He is also an associate editor of Spectator Business, and a regular contributor to The Spectator. Before that, he worked for the business section of the Sunday Times for ten years. 

He has written books on finance and financial topics, including Bust: Greece, The Euro and The Sovereign Debt Crisis and The Long Depression: The Slump of 2008 to 2031. Matthew is also the author of the Death Force series of military thrillers and the founder of Lume Books, an independent publisher.