City Research Online

Abstract

When the euro was launched in 1999, its large membership size could not be explained by any of the criteria laid down in the economic theory of monetary unions. This fact explains why the majority academic opinion has always been that the large euro was a politically motivated project with no corresponding economic rationale. This paper puts a contrary view. The euro area at the time of its launch may have been incongruent with economic theory but it was entirely congruent with economic reality. Had the euro’s creators opted for a small euro area from the start, that currency could not have withstood the gravitational pull of the dollar and thus could not have allowed the European authorities to pursue their monetary policies independently of the policies pursued by US authorities. Only a large euro area with sufficient mass to give it its own gravitational force could achieve these objectives. That was the lesson that the euro’s creators had to learn the hard way over two decades ago. In today’s era when a US president is systematically deploying the dollar as an economic and political weapon, it is more urgent than ever that that lesson be remembered.

Publication Type:	Article
Publisher Keywords:	large Eurozone, gravitational pull of the dollar, weaponization of the dollar
Subjects:	H Social Sciences > HG Finance J Political Science > JN Political institutions (Europe)
Departments:	School of Policy & Global Affairs > International Politics
SWORD Depositor:	Symplectic Administrator

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