Georgi Vuldzhev

The Structural Tragedy of the Eurozone



Accounts of the economic history of the common European currency rarely cover the full economic and historical context of its development. This text aims to present a full detailed analysis of the theoretical premises underlying the project for a common European currency, its implementation in practice in the form of the euro introduced in 1999 and to take stock of the economic and political results that this implementation generates for the member states of the monetary union. In the theoretical part of the analysis we focus on the theory of the optimal currency area as the main theoretical framework for analyzing currency unions. In addition to an exposition of the classical theory of Mundell, McKinnon, and Kennen, we also present a critical analysis and additions to its assumptions. Within the empirical part of the analysis we focus on the five largest economies forming the economic core of the Eurozone (France, Germany, the Netherlands, Italy and Spain) and also Greece, as the country that has experienced the most volatile economic development after the adoption of the euro. In this part, we present a comparative analysis of the economic development of the respective countries after adopting the euro, placed in the context of economic convergence as the main objective of the monetary union. We present an assessment of the economic results of the existence of the common European currency so far, analyze its institutional functioning and development after the debt crisis in the period 2010-2015, and outline some possibilities for its future development. The conclusion of our analysis is that both at the time of its creation and at the date of preparation of this analysis, the Eurozone does not represent an optimal currency area. Instead of economic convergence it creates preconditions for divergence between member countries and, due to its political-institutional structure, the Euro is in practice a tragedy of the commons.