Euro-area design flaws will curb GDP growth and reform

Significance

For critics, the euro-area imposes a one-size-fits-none approach to fiscal and monetary policy. While that applies also to the United States and China, given their regional disparities, Washington and Beijing have much greater scope to effect positive results through fiscal and industrial policy.

Impacts

• Inequality among euro-area members is set to worsen, as those with higher CPI and public debt grow more slowly under tighter fiscal limits.
• The euro-area’s lower current-account deficit compared with the United States shields it against external shocks that reduce capital flows.
• The US dollar remains far more used than the euro globally, enabling Washington to fund a wide external deficit even in turbulent times.
• Adding new euro-area members will not cut the risk of populist governments revisiting ways of leaving the euro while staying in the EU.
• Adding to the differential between euro-area and US economic performance, as a net energy exporter the United States is more energy-secure.