It's pretty much one of the most dysfunctional currencies out there.
> Here's how the story has been told: a year or two or three after the introduction of the euro, a recession develops in part - but only part - of Europe. This creates a conflict of interest between countries with weak economies and populist governments - read Italy, or Spain, or anyway someone from Europe's slovenly south - and those with strong economies and a steely-eyed commitment to disciplined economic policy - read Germany. The weak economies want low interest rates, and wouldn't mind a bit of inflation; but Germany is dead set on maintaining price stability at all cost. Nor can Europe deal with "asymmetric shocks" the way the United States does, by transferring workers from depressed areas to prosperous ones: Europeans are reluctant to move even within their countries, let alone across the many language barriers. The result is a ferocious political argument, and perhaps a financial crisis, as markets start to discount the bonds of weaker European governments.
* https://web.mit.edu/krugman/www/euronote.html
Which is basically what happened in ~2010:
* https://www.nytimes.com/2011/01/16/magazine/16Europe-t.html
Germany being 'fiscally obstinate' is a continuing issue:
* https://www.irishtimes.com/opinion/paul-krugman-the-world-ha...
Europe is basically like the US was pre-Civil War, where people would say "these United States": not quite culturally whole, and pulling in all sorts of directions. Given the pull of (economic) gravity Germany has, everyone is kind of forced to follow their lead, even when it doesn't make much sense.
Supposedly lots of German banks were investing in Greece and Spain because returns there were good compared to the abysmal rates in Germany. So the ECB/IMF 'bail out' ended up being a bit of a rescue of the German banks:
> According to a study by the European School of Management and Technology only €9.7bn or less than 5% of the first two bailout programs went to the Greek fiscal budget, while most of the money went to French and German banks.[84] (In June 2010, France's and Germany's foreign claims vis-a-vis Greece were $57bn and $31bn respectively. German banks owned $60bn of Greek, Portuguese, Irish and Spanish government debt and $151bn of banks' debt of these countries.)[85] According to a leaked document, dated May 2010, the IMF was fully aware of the fact that the Greek bailout program was aimed at rescuing the private European banks – mainly from France and Germany. A number of IMF Executive Board members from India, Brazil, Argentina, Russia, and Switzerland criticized this in an internal memorandum, pointing out that Greek debt would be unsustainable. However their French, German and Dutch colleagues refused to reduce the Greek debt or to make (their) private banks pay.[86][87]
I rest my case.
> The four often cited criteria for a successful currency union are:[6]
> * Labor mobility across the region. […]
> * Openness with capital mobility and price and wage flexibility across the region. […]
> * A risk sharing system such as an automatic fiscal transfer mechanism to redistribute money to areas/sectors which have been adversely affected by the first two characteristics. […]
> * Participant countries have similar business cycles. When one country experiences a boom or recession, other countries in the union are likely to follow. This allows the shared central bank to promote growth in downturns and to contain inflation in booms. […]
* https://en.wikipedia.org/wiki/Optimum_currency_area
* https://www.jstor.org/stable/1812792?seq=1
In 2012 Krugman laid out three things that needed to be done to make the Euro work better:
* https://www.journals.uchicago.edu/doi/full/10.1086/669188#_i...
An article Krugman wrote in 1999:
> Later Mundell would broaden this initial insight by proposing the concept of the “impossible trinity”; free capital movement, a fixed exchange rate, and an effective monetary policy. The point is that you can’t have it all: A country must pick two out of three. It can fix its exchange rate without emasculating its central bank, but only by maintaining controls on capital flows (like China today); it can leave capital movement free but retain monetary autonomy, but only by letting the exchange rate fluctuate (like Britain–or Canada); or it can choose to leave capital free and stabilize the currency, but only by abandoning any ability to adjust interest rates to fight inflation or recession (like Argentina today, or for that matter most of Europe).
* https://slate.com/business/1999/10/o-canada.html
His theoretical work allowed the Euro to be developed (which may or may not have been a good idea).