No more monopoly money for Europe

Philip Booth

18 January 2011

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Back in the 1960s, Ronald Reagan famously said there were no easy answers to the U.S.’s then growing problems, but that there were simple answers. In a way, today’s Europe may resemble Reagan’s view of America.

The future of the euro zone doesn’t look bright. Still, there are simple answers to the problems in the euro zone, although we lack leaders with the political courage to pursue them. At every turn, Europe’s political elite demonstrate shortsightedness and a desire for the easy route.

The first question the EU must address is how to untangle the mess in which the euro zone finds itself. The adoption of the euro brought some benefits to its members. In particular, it depoliticized monetary policy in a number of countries in which governments had traditionally debased their currencies. Arguably, however, the adoption of the euro has prevented monetary policy from adjusting to shocks and has led to economic dislocation in some of its members.

Euro-zone members have only two options—both are simple but neither is easy. The first involves radical liberalization, in particular labor-market liberalization, to ensure that euro-zone economies are flexible enough to respond to shocks. The second is to contemplate a euro-zone breakup.

Read the rest of the article on the Wall Street Journal website.

Philip Booth

Philip Booth is Senior Academic Fellow at the Institute of Economic Affairs. He is also Director of the Vinson Centre and Professor of Economics at the University of Buckingham and Professor of Finance, Public Policy and Ethics at St. Mary’s University, Twickenham. He also holds the position of (interim) Director of Catholic Mission at St. Mary’s having previously been Director of Research and Public Engagement and Dean of the Faculty of Education, Humanities and Social Sciences. From 2002-2016, Philip was Academic and Research Director (previously, Editorial and Programme Director) at the IEA. From 2002-2015 he was Professor of Insurance and Risk Management at Cass Business School. He is a Senior Research Fellow in the Centre for Federal Studies at the University of Kent and Adjunct Professor in the School of Law, University of Notre Dame, Australia. Previously, Philip Booth worked for the Bank of England as an adviser on financial stability issues and he was also Associate Dean of Cass Business School and held various other academic positions at City University. He has written widely, including a number of books, on investment, finance, social insurance and pensions as well as on the relationship between Catholic social teaching and economics. He is Deputy Editor of Economic Affairs. Philip is a Fellow of the Royal Statistical Society, a Fellow of the Institute of Actuaries and an honorary member of the Society of Actuaries of Poland. He has previously worked in the investment department of Axa Equity and Law and was been involved in a number of projects to help develop actuarial professions and actuarial, finance and investment professional teaching programmes in Central and Eastern Europe. Philip has a BA in Economics from the University of Durham and a PhD from City University.