In his speech, which opens this debate, George Soros argued that misunderstandings and misconceptions are shaping history in important ways. This is true in general, of course, and it is true in specific ways within the eurozone.
Proponents of the euro expected that under a single monetary policy and in the absence of currency risk economies would converge, as capital, goods and people would move more freely. An implicit assumption, never properly examined, was that national economic institutions would also become more similar. As Jean Pisani-Ferry tells it, in the early 1990s, part of the European elite selected central banks as a good candidate for merging into one tightly knit system, since they were already operating more or less in the same way; whereas welfare systems or industry policy were markedly different. It was perhaps thought that these other institutions would follow suit, eventually.
What seems to have happened, however, is that the monetary union actually served to mask and therefore preserve institutional differences in most other levels of the economy – in business strategies, in wage setting, in fiscal planning. Under the illusion of harmony, imbalances were allowed to get out of control. Continue reading