A few days ago, Paul Krugman speculated on the similarities and differences between the pre-Civil War United States, and the eurozone today.
Greece and Portugal are relatively poor, with GDP per capita of 82 and 77 percent, respectively, of the EU average; this means roughly 76 and 71 percent of the eurozone average, since the euro countries are a bit richer than the EU as a whole. … But it’s no different, really, than the US situation (look under per capita GDP). Alabama is at 74 percent of the US average, Mississippi at 67, with New England and the Middle Atlantic states at 118 and 116. …In other words, as far as underlying economic inequalities are concerned, the EZ is no worse than the US. The difference, mainly, is that we think of ourselves as a nation, and blithely accept fiscal measures that routinely transfer large sums to the poorer states without even thinking of it as a regional issue … The thing is, we didn’t always think of ourselves as a nation, either. Before the Civil War, people talked about “these United States”; it was only after the war that “these” became “the”. So the key to the success of the dollar zone may be summed up in three words: William Tecumseh Sherman.
While this may seem provocative, there is some political science that comes to a broadly similar conclusion. Kate McNamara at Georgetown has done a lot of work to flesh out this comparison, and see if it is useful. Her findings:
The root of the problem is the fact that the single currency has come about without full political integration, and is not embedded in a larger institutional setting as with every other single currency in history. … [This] lies in the political unwillingness to move forward with such a dramatic break from national sovereignty …One such fruitful illustrative historical case can be found in the antebellum United States (US), which provides a striking analogy to, and some striking differences with, contemporary Europe. … statebuilding is most likely when both factors pushing statebuilding, war and market integration, are present and least likely when they are not. When one but not both factors are present, statebuilding is likely to occur, but only unevenly.
… A national money can be a crucial component of state capacity in times of warfare, facilitating the collection of revenues, payment of federal expenditures, and organization of debt. A single currency can also aid in the development of a national single market, simplifying transactions and lowering uncertainty across economic actors. If motivated public actors are able to seize the opportunities presented by a period of security threats or the political demands of an enlarging market, they may successfully move governance towards the center of a political system. Societal groups may be more likely to support currency consolidation (or at least not mobilize in opposition), as the fact of war or economic instability may cast a legitimizing light on government reorganization and power centralization.
both today’s EU and the US of the nineteenth century can be described as loose federal structures with central control limited to a few key areas … Of course, important differences in the concentration of federal power remain: the foreign policy capacity of the US was much greater than it is in today’s EU. … The most immediate and proximate cause [of US monetary integration] was war, specifically public officials’ need to rationalize the monetary system and increase federal revenues to prosecute the American civil war. The second factor setting the stage for a single currency was the creation of a single American market, spurred on by the federal courts, which created rising societal pressures for regulation of the monetary regime.
The decision to finally go forward with the Euro in 1992 at Maastricht was influenced by similar concerns, but there was little security imperative to the single currency … Market integration, not war, is the causal factor that appears in both the US and EU cases … In part because of the sources of the single currency, however, this transfer of political authority has not extended to fiscal policy … The US case implies that EU political elites are likely to wait until a severe crisis changes the publics’ perception of the value of moving fiscal capacity to Brussels. The critical question is whether the ongoing and dramatic crisis in the eurozone today might be provoking a political recalculation of whether a Eurobond, and substantially deepened fiscal authority at the European level. In the public discourse, the idea of a eurobond is gaining traction, despite German president Angela Merkel’s distaste for lumping her fiscally prudent nation together with much less trustworthy member states.
[Cross-posted at The Monkey Cage]