The euro is the essential cause of Europe’s “democratic deficit” because it prevents different countries adopting the variety of social and business models that voters demand. A currency is to national economic management what a border is to political sovereignty: with floating currencies each country can choose its own style of economic and social organisation; with fixed currencies they can’t.
If France or Italy wants a generous social safety net, it can keep its business costs down by devaluing its currency. Of course, devaluation may lower living standards for consumers, but if people want to pay this price to preserve their social traditions, that is what democracy is for. It is only when a country with high social costs loses control of its currency that the burden becomes intolerable, destroying jobs and decimating investment.
This is exactly what has happened in the eurozone since 2001. After 9/11 and the Iraq war the euro began to rise for essentially non-economic reasons. Unable to
control this currency upsurge, national politicians had only two other options: either to dismantle their costly social provision (a concept which French voters have clearly rejected) or to cut hourly wages (a policy which Germany has attempted, with beneficial results for profits but disastrous effects on consumer confidence and the Government’s popularity).
If the euro did not exist, European politicians would not be driven to such desperate, even suicidal, measures. Each country could make its decisions about the balance between social protection, wages and currency strength.
Since European voters are unwilling to accept wage cuts or abandon their social model, the rational choice is for the eurozone as a whole to adopt the policies that worked so successfully for Britain (and to a lesser extent in Italy) after White
Wednesday: to devalue the euro and stimulate growth by slashing interest rates
to 1 per cent or less.
I don't think a weakened Europe is the best thing. But it looks like the idea that Europe is stable has been mostly assumed.