Q&A: EuroTragedy: A Drama in Nine Acts
In his new book, “EuroTragedy: A Drama in Nine Acts,” Ashoka Mody offers a historical narrative of how European leaders decided to adopt the euro as a common currency. He argues that this decision has led to economic divergence, Euroscepticism and intensified political divisions across the continent.
Mody is Charles and Marie Robertson Visiting Professor in International Economic Policy at Princeton University’s Woodrow Wilson School of Public and International Affairs. His former duties include deputy director in the International Monetary Fund's Research and European Departments, and positions at the World Bank, University of Pennsylvania, and AT&T's Bell Laboratories.
Mody’s book was published by Oxford University Press in June 2018.
Q. What inspired you to write this book?
Mody: Since late 2009, after an economic and financial crisis began in Greece, many observers have suggested various measures to reform and strengthen the eurozone. However, virtually all the commentary ignores the historical limits to feasible reforms. Using the historical narrative, I explain why the response to the crisis was always in the form of denials and half-measures. I also explain why forces of economic divergence and political divisions will endure.
Q. What are the main takeaways?
Mody: In May 1950, European states started building an admirable structure of institutional cooperation and open trade borders to secure peace and prosperity after decades of turmoil. However, they then took an ill-advised turn to build a political union around a currency, which required a single monetary policy for very different economies. Critics at the time said this was economic idiocy.
The euro crisis weakened the growth potential of the weaker member states, and thus widened the division between nations. It made financially vulnerable Europeans more anxious, and hence deepened the sense of unfairness. The crisis has left a particularly heavy burden on the younger generation.
Q. What are the policy implications?
Mody: Policy choices are limited. I propose that instead of centralizing authority, steps should be taken to loosen the ties that bind too tightly. I believe then the euro would function with less economic and political tensions. However, there may come a point at which a breakup of the eurozone – those countries that share the euro as a currency – appears inevitable. In that case, I believe that Germany, as the strongest member of the eurozone, would be best placed to bear the financial pain of exiting. That could begin the least damaging process of unraveling the eurozone. Ultimately, however, European authorities must renew the wellsprings of growth in their own domestic economies and take steps to promote a liberal economic order to help the continent thrive.