Some foreign policy decisions hang like albatrosses around the necks of the states that made them. For the United States, the war in Iraq offers the prime example of a costly and seemingly irreversible blunder. For Europe, it is the adoption of the euro. Fifteen years ago, when the EU established its single currency, European leaders promised higher growth due to greater efficiency and sounder macroeconomic policies, greater equality between rich and poor countries within a freer capital market, enhanced domestic political legitimacy due to better policies, and a triumphant capstone for EU federalism. Yet for nearly a decade, Europe has experienced just the opposite.
Even in good times, economic growth under the euro was unexceptional, but with the global financial crisis, the situation grew dire. Since 2008, inflation-adjusted GDP in the eurozone has stagnated, compared with an expansion of more than eight percent in European countries that remain outside. Greece’s economy is more than 25 percent smaller than it was in 2008. Italy’s is almost ten percent smaller, and its financial system may be the next to melt down. The loss of European output totals about six trillion euros—a massive figure, reflected in the shattered lives of unemployed youth, bankrupt business owners, and vulnerable citizens unable to maintain their standards of living. Although losses from short recessions are often offset by higher-than-average growth thereafter, that process does not typically occur after prolonged depressions such as the current one. In this situation, a lost decade may well become a lost generation.
Nor has the euro reduced inequality among European countries. Since 2007, the German economy has grown by almost seven percent, whereas the economies of Belgium, France, and the Netherlands have remained stagnant, and those of Finland, Greece, Ireland, Italy, and Portugal have all contracted more than they did during the Great Depression. Inequality has also increased within countries—to a stunning degree in the worst-performing ones, such as Greece, but even in Germany, too.
The prolonged depression has helped fuel the
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