Solve for the equilibrium

Scott Sumner on the eurozone, wise throughout:

The eurozone excludes Norway, Iceland, Sweden, Denmark, Britain and Switzerland. That’s a fairly affluent group of countries.  The eurozone is shaped roughly like a pyramid, with Finland on top, and a wide base stretching from Portugal to Cyprus on the bottom.  Most of the weight if a pyramid lies in the bottom half, which in the case of the eurozone is mostly lower income countries like Italy, Spain, Greece, Portugal, Cyprus, and Malta…

The pyramid structure I referred to earlier is likely to get much worse as the eurozone grows over time.  And it seems to me that here you have a massive adverse selection problem.  Because of Abraham Lincoln, affluent states like Massachusetts can’t suddenly decide they want no part of our fiscal union, and would rather just reap the benefits of our large single market.  But Switzerland, Norway can and did make that choice.  Britain almost certainly would, and both Sweden  and Denmark might as well.  In contrast, Bulgaria, Romania and Croatia would like nothing more than to join such a union.  And all the likely future expansion of the EU is into areas further east, and much poorer than even Greece and Portugal.  Places like Armenia, Georgia, Ukraine (a country nearly the size of France) Belarus, Serbia, Macedonia, Bosnia, Moldova (the saddest place on Earth—even the name is depressing.)  And did I mention Turkey?  Indeed why not Russia at some distant point in the future?


Comments for this post are closed