The European countries of the euro zone have been struggling over just how to continue to support that currency. Are their problems simply due to their large degree of diversity in fiscal affairs? N.C. State University economist Mike Walden weighs in:
Some economists say that’s exactly the problem in the sense that you have countries that don’t have the same attitudes about their fiscal affairs — some countries that are willing to run big fiscal deficits, others that are more fiscally moderate. If you have a country that does have a fiscal problem, say they run huge deficits, and they have their own currency, and essentially they’re going to pay for their bad fiscal policy by seeing the value of their currency go down, which means their citizens actually become poor because it cost them more to buy products and services from other countries.
But when you have that country part of a bigger zone where they all use the same currency you don’t have that kind of discipline. And some economists argue this is the problem that we have in Europe — that you really have different cultures about fiscal affairs. You have perhaps a northern zone that would include countries like Germany and France that have more moderate fiscal policy. Then you have a southern zone that maybe has Greece and Spain and Italy that have a little more lax viewpoints concerning fiscal affairs.
And some economists say that the ultimate solution to the European issues is really to break up the euro into those two zones, a northern euro and a southern euro. And really anything short of that is really just postponing the inevitable.