To misquote Mao Zedong, creating a single currency is not a tea party. Despite former U.S. central banker Alan Greenspan’s disparaging comments about the future of the euro, Americans had far worse problems creating a single currency.
The question facing the Europeans as they hammer out a deal with Greece is whether the long-term advantages of the euro outweigh the pain of the current ructions. If the American experience is any guide, it is worth it.
Greenspan has been widely quoted as predicting the collapse of the eurozone, led by the forced exit of Greece. In the interview on the BBC, however, Greenspan did not specifically link the two, as in cause and effect.
But he did say that, in the long term, the European currency union is untenable.
“There is no way I can conceive of the euro continuing unless and until all of the members of the eurozone become politically integrated,” Greenspan told the BBC’s Mark Mardell.
What Greenspan conveniently seemed to forget is that for Americans (and even Canadians), settling on a single unit of payment was a long and painful process. It costs money. And if U.S. history is any guide, it does not depend on perfect political integration.
In some ways, the U.S. states are less integrated than the countries of the European Union. Certainly they were much less so when they were getting their currency together.
Texas, as just one example, only joined the currency union in 1850 after the Texas redback collapsed. The bankrupt state was bailed out to the tune of $10 million as part of the Compromise of 1850.
The size of that bailout comes into proportion when you know that in 1853 the entire U.S. federal debt was about $50 million.
Then, of course, there was the U.S. Civil War, with its Confederate States of America dollar. Even the Union dollar collapsed. That was when the name “greenback” appeared because the currency was no longer backed by gold. In 1862, the U.S. dollar fell in value to 38 Canadian cents.
Even after the U.S. Supreme Court declared Washington to be sovereign over the individual states, it was privately owned banks that issued currency. Central banking was an innovation imported from Europe only after the U.S. financial collapse of 1907.
In the case of the eurozone, Greenspan said that’s not good enough.
“Fundamentally, what clearly was the driving force was the fact that they had two world wars on European soil within 20, 25 years,” he said dismissively.
I don’t know about Greenspan, but I’d say avoiding a third world war is worth a bit of trouble getting through the current rough patch.
*Don Pittis has been a Fuller Brush man, a forest fire fighter and an Arctic ranger before discovering journalism. He was principal business reporter for Radio Television Hong Kong before the handover to China and has produced and reported for CBC and BBC News. He is currently senior producer at CBC’s business unit.