The Curious Case of Europe

Common currency area was dreamt up by the great economist Dr. Mundell in terms of conditional Optimum Currency Area (OCA)and he received a Nobel prize for the same. So what are the conditions on which an OCA are based? Capital & labour mobility and Fiscal flexibility in terms of a surplus nation coming to the aid of a deficit nation. Since the latter is impossible to achieve politically, it was expected that OCA would never be possible and remain a utopia. But founders of the EU led by Germany and France,hounded by the guilt of their respective histories of waging war on the Continent evolved various contraptions including but not limited to budgetary controls to launch the greatest experiment since the Leninist Bolshevik revolution of 1917.

The resulting Sub-Optimum Currency Area(SOCA) has been a major problem child spawning amongst others a Soviet Politburo like EU Council and EU Governance framework that is as bureaucratic and Stalin-like as it's famous predecessor.

This SOCA Politburo , for example, has decreed that a hitherto well to do nation(prior to joining the EU this nation was pretty well contented) of 11 million inhabitants should perish in the service of Charlemagne's fantastic vision. If this is not Stalinism , veering towards Hitlerism , then pray, what is it?

The Road to Heaven is paved with good intentions
So how did this come about? It started quite innocently as noted above bypassing all received tenets of wisdom. Politicians& bureaucrats in European capitals salivated at the prospect of extended service in the edifice of the modern Charlemagne empire. All common sense and basic ECON 101 was cast aside to hastily create a flawed structure. Nations with weak current accounts and weak fiscal positions united with those with very strong macroeconomic parameters. It doesn't require a Rocket scientist to figure out that the European Union would be as successful as the Soviet Union.

And so it is. Ladies and Gentlemen, presenting to you - The Curious case of a bungled Union-The European Union. This Union preaches austerity today at a time when suffering deflation it should be doing maximum of the opposite by utilising negative sovereign yields in many of EU nation states to borrow and spend on infrastructure, research and education.

Stalin seems to be alive and well. The Politburo did not perish with Gorbachev. The Berlin Wall never fell.