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Nor has the euro reduced inequality among European countries.

The prolonged depression has helped fuel the rise of right-wing nationalists and Euroskeptics. In Austria, Finland, France, Germany, Greece, the Netherlands, and elsewhere, radical right-wing parties now enjoy more success at the polls than at any time since the 1930s.

Trust in EU institutions,

has fallen through the floor.

Most observers now attribute these troubles to the euro.

Varoufakis

Galbraith

Stiglitz

All three would prefer that the system be reformed.

Galbraith offers the most succinct explanation of why the system has benefited Germany at the expense of weaker economies:

The Greek story is properly a European story in which, as in all European stories, Germany takes the leading role.

Varoufakis, Galbraith, and Stiglitz differ on the details, but they all blame the euro system and, especially, Germany.

Stiglitz shows that international systems of pegged currencies, of which Europe’s single currency represents only an extreme example, “have long been associated with recessions and depressions.”

The reason currency pegs often depress economic growth lies in the essential nature of monetary arrangements.

In the real world, however, countries have diverse market positions and domestic institutions, which means that macroeconomic convergence is hard to come by.

a currency peg prevents the governments of countries that run trade deficits and incur debt from pursuing healthy economic policies to correct the problem.

normally loosen domestic monetary policy (thereby lowering interest rates and stimulating investment), let its currency depreciate (thereby boosting exports, reducing imports, and transferring income to the sector of the economy that produces competitive goods), and increase government spending (thereby stimulating consumption and investment).

Deficit countries are thus left with only one way to restore their competitiveness: “internal devaluation,” the politically correct term for austerity

permanent austerity becomes the only way to maintain international equilibrium.

Citizens grasp at increasingly radical new parties and lack the faith in Europe required to enact needed reforms.

Germany has emerged almost unscathed—at least so far.

Yet the costs of a flawed monetary system may eventually boomerang and depress growth even in Germany. Austerity is slowly reducing Germany’s ability to sell its goods to other European countries,

Stiglitz offers the most thorough evaluation of the possible options. There are three. The first entails reforming the fundamental structure of the euro system so that it generates growth and distributes the benefits fairly. Stiglitz details how the EU and the European Central Bank might rewrite tax laws, loosen monetary policy, and change corporate governance rules in order to boost wage growth, consumer spending, and investment.

to force the German economy into line

the EU could discourage trade surpluses by imposing a tax on them

Another set of structural policies would encourage large fiscal transfers and migration in order to offset the inequities that the euro has induced. In essence, this would replicate the movements of capital and people that make single currencies viable within individual countries.

fiscal transfers from creditor countries such as Germany to deficit countries such as Greece and Italy.

Stiglitz proposes, Germany and other surplus countries could do more to accept and encourage continuous migration flows from deficit countries.

Germans are unlikely to renounce the export-led growth that has stemmed from their 60-year tradition of high savings, low inflation, and modest labor contracts. They are even less likely to accept massive fiscal transfers to other countries.

Despite the EU principle of free movement, many informal barriers to mobility still protect special interests.

Political opposition to immigration is already strong in Austria, Denmark, Germany, and the Netherlands, and these countries would not tolerate many millions of additional foreigners.

a second policy option: muddling through. In this scenario, member states would strengthen the EU’s ability to manage the crisis.

European Stability Mechanism,

The burden of the current system on deficit countries must also be eliminated—a change that requires far more serious reform. Eventually, Europe would have to restructure its debt,

GDP-indexed bonds

eurobonds

the solvency of national banks,

Yet Germany and other creditor governments are naturally hesitant to accept financial responsibility for debtor countries.

Such reforms would also require the EU to massively expand its oversight over national financial systems,

If neither of the two options to save the single currency and restart growth is viable, this leaves only a third option: abolishing the euro.

Although Stiglitz would prefer that the euro be reformed, he admits that “there is more than a small probability that it will not be done” and therefore argues for breaking up the system.

from Grexit to his preferred alternative of breaking the eurozone into several subgroups, each with its own currency.

Yet even the radical step of breaking up the eurozone, Stiglitz makes clear, would probably help deficit countries only if Germany agreed to increase domestic spending, rein in speculation, and reduce deficits.

Abolishing the euro might slightly improve the options for deficit countries, but absent deeper structural reforms, it would not eliminate the underlying problem.

depressing reading, because in the end, they suggest that there is no easy way out of Europe’s predicament, given the current political constraints. In the long run, muddling through may be the worst outcome, and yet it is the most likely.

In response to such a bleak prognosis, many European federalists, particularly on the left, contend that Europe’s real problem is its “democratic deficit.” If only EU institutions or national governments were more representative, they argue, then they would enjoy sufficient legitimacy to solve these problems. The EU needs more transparency in Brussels, more robust direct elections to the European Parliament, a grand continent-wide debate, and political union, the argument runs, so that the resulting European superstate would be empowered to impose massive fiscal transfers and macroeconomic constraints on surplus countries. Alternatively, if more radical alternatives could be fully debated in national elections, then member states might muster the power to pull out of the eurozone or renegotiate their terms in it.

everything comes down to choices made by self-interested sovereign states. Governments have little incentive to make charitable and risky concessions, even in a united Europe with economic prosperity on the line. Politicians simply lack the strength and courage to make a genuine break with the status quo, either toward federalism or toward monetary sovereignty.