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PROBLEMS FACED USING SINGLE CURRENCY

There are other problems with a unified currency — as countries in the Eurozone are learning. Though the first 10 years of sharing a single currency went relatively smoothly, cracks have begun appearing on the continent as the global recession deepens.

One of the original goals of the Euro was to raise the overall productivity of the European economy, as weaker, smaller countries had to become more competitive with larger, stronger countries. In fact, the reverse is true. Weaker countries enjoyed higher purchasing power without having to produce more goods and services. Overall productivity growth slowed in Europe from 1.6 percent a year before the euro to half that pace since.

The Euro also suffers from the fragmented political structure that governs the economy it represents. Since each member country can issue its own debt, the euro is used in 16 different bond markets. Each country sets its own tax and spending policies; some countries now carry debts larger than their gross domestic product. 

So while they’ve been freed of the impact of currency fluctuation, euro countries now face a different — in some cases more painful — impact from the whims of global investors. Borrowing costs in heavily indebted countries like Spain, Greece, Ireland and Portugal are much higher than of Germany, which has accumulated the largest pile of savings.

That presents these countries with some painful choices they didn’t have to deal with back in the days when they could devalue their local currency. Italy, for example, faces some stark choices, according to a 2006 report by the Center for European reform, a London-based think tank. It can continue to muddle along as the slowest growing economy among euro countries. Or it could boost productivity, chiefly by cutting wages. Or it could leave the euro, devalue its debts and create its own currency. Doing so, however, would make it much more difficult to borrow.

Other euro countries with...