The Euro Won't Cure Europe's Ills
Professor Jeffrey E. Garten paints a bright future for Europe resulting from the creation of a European currency ("The Euro will turn Europe into a superpower," Economic Viewpoint, May 4). According to Garten, this is a great opportunity for expanding market size, which will bring prosperity.
The argument seems to overlook basic economics: The benefits of larger economic scale do not rely on the use of any specific currency or currencies. The economies of Hong Kong, Singapore, and Taiwan are small, and their currencies are not major international currencies. Yet they have achieved remarkable prosperity in the past half-century. Their success can mainly be attributed to a flexible labor market, in which hard-working people and entrepreneurs take advantage of the world market for their own production.
The argument also neglects another point: The incentive to work, to innovate, and to invest is key to long-term progress. In most of Europe, governmental intervention in labor markets has raised labor costs higher than workers' marginal productivity. As a result, Europe has some of the highest unemployment rates in the world. Private employment has been stagnant for more than two decades. The single currency is by no means the right medicine to cure this "European disease."
Feng Chia University