If North Americans can think constructively about Europe’s problems, maybe they can start thinking a little more creatively about their own.
In a fascinating interview with Terence Corcoran of the Financial Post, Robert Mundell, American Nobel prize–winning economist and widely identified as the “author of the euro,” challenges the most popular theoretical argument used to attack the logic of Europe’s currency union, as well as the logic of our own.
“[Mundell] dismisses the claims of critics who say that the euro was a mistake because Europe is not a fiscal union. ‘Very few countries in the world have a fiscal union. It would be almost impossible for a large country to have a complete fiscal union. Canada and the United States do not.’
“‘It is curious how American and sometimes North American economists have tried to nail the deficit problem as a 'euro' problem. If the Government of Canada or Newfoundland or Ontario ran up their public debts, and had big current deficits to boot, would that be a debt-deficit problem or a loonie problem? If California is on the verge of insolvency would that be a U.S. dollar problem or a debt-default problem for California?’”
Estonia, Germany, France, Italy, and 13 other states; Newfoundland, Ontario, Quebec, Alberta, and 6 other provinces; California, Texas, Michigan, South Carolina, and 46 other states—all using the same medium of exchange and responsible for own budgets.
For 15 years, for 145 years, for 236 years, three democratic currency unions with multiple fiscal regimes, with uneven business cycles and hot and cool labor markets, have allowed for long-term economic growth and peaceful political change.
Each currency union, furthermore, includes sub-jurisdictions with significantly different political cultures—some enjoying great power and many carrying on with relatively little.
Europe’s central institutions and federal budget (less than 2% of Europe’s GNP) are, today, relatively small compared to the public sectors of its 17 members. Consequently, political coordination is required to mobilize the credit and power of the whole of Europe to fight a crisis in its member states. This problem hasn’t existed in North America for over a century.
North American federalists don’t face Europe’s currency management crisis. Instead, we imagine ways to stay apart as readily as we bother to act together.
With severe global pressure to be even more innovative, productive, and flexible, tell me again: What’s the conversation-killing argument against a currency union of the two oldest federations—Canada and the United States?