11/23/2004 06:55:45 AM|||Nathan Moore|||

The headline - Italy's Berlusconi says euro strangling economy.

You mean, that when you divest the power to control monetary policy from economically distinct regions, economic growth may suffer? With the constraints on individual governments, a pro-growth fiscal policy is difficult to fashion. I always thought that the EU jumped a little too quickly onto the idea of a common currency. The idea itself is sound, but with such a lack of central control politically, effective monetary policy throughout the economically diverse Eurozone is almost impossible.

Throughout history, including our own, distinct states united first in a military fashion. Europe nominally did this during the Cold War, but not to an independent extent separate from the protective umbrella of the United States. The Greeks unified for defensive purposes (the Delian League). In a less voluntary manner, Russia and China have obtained unity through conquest. The same goes for the UK and the Roman Empire. In addition to forced cohesion, time is the hardener that keeps the glue together. The European Union acted too fast, absorbing new economies as fast as the bureaucrats would let it. The EU, in effect, has evolved in a reverse fashion.

The strength of the Euro has created further problems. European exports have become more expensive, especially when compared to the weaker dollar (a point of contention with the export oriented economies of APEC last week). Of course, with the size of the Eurozone, one would think that the Old World would be well beyond an export economy, but than again, size isn't everything, especially if the thing is dysfunctional from the beginning.

Can Europe compete with the United States? Maybe...eventually. People forget it, because it is taken for granted, but the source of America's economic strength, and influence in the world, is its status as the largest free trade zone in the world. The Eurocountries would be wise to take note.

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