The Euro and European Economic Conditions

Martin S. Feldstein

NBER Working Paper No. 17617
Issued in November 2011
NBER Program(s):   EFG   IFM   ME

The creation of the euro should now be recognized as an experiment that has led to the sovereign debt crisis in several countries, the fragile condition of major European banks, the high levels of unemployment, and the large trade deficits that now exist in most Eurozone countries. Although the European Central Bank managed the euro in a way that achieved a low rate of inflation, other countries both in Europe and elsewhere have also had a decade of low inflation without incurring the costs of a monetary union.

The emergence of these problems just a dozen years after the start of the euro in 1999 was not an accident or the result of bureaucratic mismanagement but the inevitable consequence of imposing a single currency on a very heterogeneous group of countries, a heterogeneity that includes not only economic structures but also fiscal traditions and social attitudes.

This paper reviews (1) the reasons for these economic problems, (2) the political origins of the European Monetary Union, (3) the current attempts to solve the sovereign debt problem, (4) the long-term problem of inter-country differences of productivity growth and competitiveness, (5) the special problems of Greece and Italy, (6) and the pros and cons of a Greek departure from the Eurozone.

download in pdf format
   (135 K)

email paper

This paper is available as PDF (135 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w17617

Published: The Failure of the Euro, The Foreign Affairs, January/February 2012 issue

Users who downloaded this paper also downloaded these:
Feldstein w17260 What's Next for the Dollar?
Reinhart and Rogoff w15795 From Financial Crash to Debt Crisis
Aizenman, Hutchison, and Jinjarak w17407 What is the Risk of European Sovereign Debt Defaults? Fiscal Space, CDS Spreads and Market Pricing of Risk
Eichengreen w13393 The Breakup of the Euro Area
Eichengreen The Breakup of the Euro Area
NBER Videos

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email:

Contact Us