Was Milton Friedman Right About the Euro?

'At the time of the euroâ??s launch in January 1999, Milton Friedman famously observed that the euro would not survive the first major European economic recession. The sovereign debt crisis presently engulfing Greece, Spain, and Portugal in the wake of the â??Great Recessionâ? would suggest that, in the end, Friedman will prove to have been right. It does not seem too early for U.S. policy makers to start pondering the serious international economic and geopolitical ramifications that would flow from any eventual breakup of the euro.

The main motivation for the euroâ??s creation was political rather than economic. It was thought that creating a single European currency would advance the dream of an integrated Europe that could rival the United States on the international stage. While it was recognized that the euro rested on the shakiest of economic fundamentals, it was hoped that the single currency would force economic change on its wayward Mediterranean member countries. It would do so by requiring those countries to undertake deep structural economic reforms and to abide by the strict Maastricht Treaty rules for individual member countriesâ?? budget policies.

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