Wednesday, December 01, 2010

Sobre o euro e o dolár

Megan McArdle:

Optimal currency zones are places where the markets are tightly integrated--i.e., everyone using the same currency is on the same business cycle.  The US, incidentally, is not really an optimal currency zone--but we have a number of factors which let us get away with this.  With automatic fiscal stabilizers, and emergency assistance to the states, we naturally transfer money from booming regions to those which are underperforming; this considerably eases the strains of mismatched business cycles.  We also have very high rates of labor mobility.  While there is a narrow educated elite that moves around Europe quite a lot, compared to Americans, most Europeans don't even move around that much in their own country, much less across borders.

This has contributed greatly to the current problems:  Ireland's economy was overheating even as Italy's was stagnating.  Now that the crash has come, monetary policy is wildly too tight for Ireland, which has contributed to the fiscal death spiral.

The EU can save the euro by tighter integration, both to help synchronize the business cycles, and to enable fiscal transfers when they diverge.  The Irish bailout is a move towards this sort of thing, but as Paul Krugman has pointed out, it's probably not going to work.  And the project of ever-closer union, already struggling, seems to have been killed dead (or at least, knocked into a deep coma), by the current crisis.

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