OPINION

July 18, 2012, 7:12 p.m. ET

There Is No 'Euro Crisis' When a state in the U.S. has a debt problem, one never hears that there is a 'dollar crisis.'

By PASCAL SALIN

Contrary to what is claimed daily in the media by politicians and many economists, there is no "euro crisis." The single currency doesn't have to be "saved" or else explode. The present crisis is not a European monetary problem at all, but rather a debt problem in some countries—Greece, Spain and some others—that happen to be members of the euro zone. Specifically, these are public-debt problems, stemming from bad budget management by their governments. But there is no logical link between these countries' fiscal situations and the functioning of the euro system. It's worth stressing that the deficits now plaguing these countries were, in large part, justified only a few years ago as necessary to initiate so-called "recovery policies." But it is always an illusion to believe that governments could increase total demand and thereby induce producers to produce more. Governments can only shift resources from those who have created them to those who haven't. The present state of affairs in countries that engaged in stimulus blowouts in 2008 and 2009 should serve as proof of the failure of the Keynesian model. When an individual or a firm is indebted, moreover, they are rightly considered to be responsible for reimbursing their debts, and they either have to spend less or produce more to do so. Their debts are not generally problems to be shifted onto other people who managed their money more cautiously. Why shouldn't the same moral discipline be imposed on governments? The public-debt problem becomes a euro problem only insofar as governments arbitrarily decide that there must be some "European solidarity" inside the euro zone. But how does mutual participation in the same currency logically imply that spendthrift governments should get help from the others? When a state in the U.S. has a debt problem, one never hears that there is a "dollar crisis." There is simply a problem of budget management in that state. Because European politicians have decided to create an artificial link between national budget problems and the functioning of the euro system, they have now effectively created a "euro crisis." To help out badly managed governments, the European Central Bank is now buying public bonds issued by these governments or supplying liquidity to support their failing banks. In so doing, the ECB is violating its own principles and introducing harmful distortions. Contrary to what Europeans have been hearing from leaders and pundits over the past few years, a monetary zone can work perfectly well with very

Enlarge Image David Gothard

different members. The U.S. dollar zone is one example. See also the

so-called "franc zone," in which several African countries and France were able to maintain a single currency (with the exception of one devaluation) for decades. The "euro crisis" is a pure political construction. It is a splendid opportunity for many politicians to impose some of their longstanding goals on everyone else. For instance, before the introduction of the euro, many politicians who called themselves Europeans considered monetary union a stepping stone to political

union. I was opposed to the euro before its creation, precisely because I feared that the currency's stewards would take this arbitrary link between the monetary system and national policies as a pretense to further centralize political decisions. Politicians now argue that "saving the euro" will require not only propping up Europe's irresponsible governments, but also centralizing decision-making. This is now the dominant opinion of politicians in Europe, France in particular. There are a few reasons why politicians in Paris might take that view. They might see themselves being in a similar situation as Greece in the near future, so all the schemes to "save the euro" could also be helpful to them shortly. They might also be looking to shift public attention away from France's internal problems and toward the rest of Europe instead. It's easier to complain about what one's neighbors are doing than to tackle problems at home. France needs drastic tax cuts and far-reaching deregulation and labor-market liberalization. Much simpler to get the media worked up about the next "euro crisis" meeting with Angela Merkel. Before the creation of the euro, Europeans claimed that the euro would increase growth and stability in Europe. They even went so far as to hire econometricians to claim that the euro's introduction alone would increase GDP growth by 1%. I didn't believe it at the time, and in retrospect it looks even sillier to claim that a monetary change could ever have solved a real economic problem. But now the euro exists and there is no reason not to keep it around. The real solutions to Europe's debt problems lie in tax cuts and deregulation, and it's here that national politicians should turn their attention. Pan-European cooperation won't deliver any government from its fiscal or economic crises. Mr. Salin is professor emeritus of economics at the Université Paris-Dauphine. A version of this article appeared July 19, 2012, on page A15 in the U.S. edition of The Wall Street Journal, with the headline: There Is No 'Euro Crisis'.