Which will contribute to exacerbating unemployment

The Greek crisis endangers the survival of the euro. At its creation, many expressed concern about its viability. Since then, the question of whether what adjustments could be made if a part of the euro zone was a violent shock went unanswered. Fixing exchange rates and by entrusting the ECB monetary policy, Governments have lost two important means to stimulate their economy and avoid a recession. How to replace them

The Nobel Laureate Robert Mundell has highlighted the conditions under which a single currency could work. Europe did not meet these requirements in the creation of the single currency. And it does still not fills. The removal of legal barriers to the mobility of workers has created a single labour market, but American mobility is an unattainable goal due to linguistic and cultural differences. Europe is also no way to help countries facing serious problems. The Spain, for example, has an unemployment rate of 20 - and more than 40 among young people. Before the crisis, its budget was surplus to requirements. Today its deficit exceeds 11 of GDP. Even the Spain must now reduce expenses. Which will contribute to exacerbating unemployment.

Some hoped that the Greek crisis would be sufficient to convince European leaders that the euro cannot succeed without greater cooperation (including budgetary support) to this country. The demi-propositions and vague promises have not been able to calm markets. In the same way that the United States had tinkered financial assistance for the Mexico fifteen years ago by combining the international monetary fund and the G7 aid, Europe has developed a plan of support with the IMF.

For the smaller countries of the European Union, the lesson is clear: if they do not reduce their deficits, the risk of a speculative attack and hope to obtain assistance from their neighbours weakens. The problems of the euro must be considered in a global perspective. America has denounced the trade surpluses of China; but, expressed as a percentage of GDP, the German surpluses are higher. Considering that the euro has been designed to be broadly balanced trade across the euro area, the Germany surpluses mean that the rest of Europe is in deficit. The US complained China's refusal to allow the assessment of the rate of Exchange against the dollar. But the system of the euro does not allow an increase in the rate of German Exchange to the other members of the euro area. For the Germany (as in China), high savings and strong exports are the virtues, not defects. But John Maynard Keynes pointed out that the surpluses lead to a decrease of domestic demand; in other words, the surplus countries have a "negative externality" on their partners and the surplus countries pose a threat to global prosperity than the deficit countries.

The social and economic consequences of the current decisions should not be acceptable. Countries whose deficits have exploded because of the recession should not be drawn into a deadly spiral - like the Argentina ten years ago.

One proposed solution is that these countries develop a mechanism akin to devaluation by a uniform reduction in wages. This is not feasible.

Second option: the output of the Germany of the euro area or division of the euro area in two subregions. The euro has been an interesting experience; but, as the mechanism of European exchange rate (CCM), which collapsed under speculative attacks against the pound in 1992, he suffers from the lack of institutional support necessary for its proper functioning.

There is a third solution: hire the fundamental institutional reforms, including establishing a budget framework.

There is still time for Europe to engage in these reforms and thus be equal to the ideal of solidarity on which the creation of the euro was based. But if Europe fails, then perhaps be better to admit failure and move on rather than pay the high price of unemployment and human suffering on behalf of a failed economic model.