Book of the week: a history of the euro

Cover of EuroTragedy: A Drama in Nine ActsEuroTragedy: A Drama in Nine Acts
By Ashoka Mody
Published by Oxford University Press, £22.99
(Buy at Amazon)

As the current political crisis in Italy shows, the failure to agree a workable vision for the single currency has emboldened populists of both left and right, undermined democracy and entrenched the gap between northern and southern Europe.

Economist Ashoka Mody argues that this is an inevitable result of Europe’s tendency to put utopian political aspirations before economic reality. His book looks at the history of the single currency, from 1969, when it was first proposed, to the present, when its future seems in doubt.

The euro suffered from several fatal flaws from the start. The German political establishment was reluctant to back the concept, in the face of opposition from the public and most economic experts. It was in particular unwilling to sanction the system of transfers that was necessary to act as an economic stabiliser.

At the same time, the belief that Brussels would unconditionally bail out any member that ran into difficulty encouraged bondholders to lend large sums to countries, such as Greece and Spain, that were already on an unsustainable fiscal path.

These two problems were compounded by the insistence, after the financial crisis of 2008, that the only solution to the towering levels of debt was repeated rounds of drastic cuts to public spending. These had the effect of turning a recession into a depression in the affected countries, creating a vicious circle whereby austerity would worsen the deficit, which in turn would lead to demands for further cuts.

While Japan grew steadily (if slowly) during its “lost decade”, Italy’s GDP was still around 10% lower in 2016 than it was eight years earlier.

Combining both narrative history and detailed charts and tables, Mody’s book will appeal to scholarly readers, while still being straightforward enough to be enjoyed by the intelligent layperson. Although a former senior IMF official, Mody is refreshingly blunt about the internal political forces determining events.

For example, Italian politicians were held in such low esteem that many people saw rule from Brussels as an improvement, rather than an attack on sovereignty. Similarly, when politicians talked about “structural reform” they almost always meant reducing the bargaining power of workers (not surprising given Europe’s labour laws).

With eurozone unemployment high and a full recovery some way off, any book on these subjects will need to be revised as time goes on. Still, even if Mody’s book does not prove to be the final word, it is currently one of the leading works on the subject and one of the few that conveys some of the passion and urgency surrounding the issue.