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Breaking Up Is Hard to Do

The Eurozone and the Political Economy of Monetary Disintegration

Graham Bird - May 2012

From a position some years ago where the euro was seen as set to challenge the dollar as the world’s leading currency, there are now serious concerns that the on-going eurozone crisis will lead to some countries eventually withdrawing from it, beginning a process of European monetary disintegration. In retrospect, insufficient attention was paid to the economics of optimum currency area theory when the eurozone was set up and too much to the apparent political imperatives of European unity. Reversing the process of European monetary integration is not straightforward. There are significant uncertainties, but there are also serious doubts as to whether the reforms needed to sustain the eurozone in its current form will be introduced. The withdrawal of some of the weaker economies does not signal the end of the euro. By analogy, while some marriages are based on close compatibility and are successful and long lasting, others encounter irreconcilable differences. In these cases divorce, although unpleasant and stressful, may be the preferred outcome.


Marriages start off with vows of commitment and high hopes of happiness for the partners involved. Either via a somewhat serendipitous process, or increasingly via a process that involves computerised dating, the respective partners will have tried to find someone with whom they are compatible. Dating agencies will seek to ensure this by identifying key personal and social characteristics and endeavouring to match them between the partners. The assumption seems to be that similarities rather than opposites attract, and are the recipe for a lasting marriage. Even where incompatibilities exist to begin with, successful marriages rely on couples ‘growing together’ in a way that narrows the differences.

While full of good intentions at the outset, the hard fact is that marriages do not always work and some end in separation and divorce. Indeed, in anticipation of this possibility, a pre-nuptial contract may be signed. Calculating compatibility is not a perfect science, and differences may turn out to be both fundamental and irreconcilable. However, divorces are stressful and signs of failure. While on some occasions they will be amicable, on others they will be messy and acrimonious, and filled with accusations of misconduct and recriminations. But even given the pain of divorce, the perception of those involved is that it is sometimes less undesirable than struggling on with an unsuccessful and unhappy marria...

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