It Will Take Trillions of Euros to Save the European Union

Before the euro was created, the economist Robert Mundell wrote about what made for an optimal currency area. His work was so important that he won a Nobel Prize for it. He wrote that a currency area is “optimal” when it has:

• Mobility of capital and labor,

• Flexibility of wages and prices,

• Similar business cycles, and

• Fiscal transfers to cushion the blows of recession to any region. 

Europe has almost none of these. Very bluntly, that means it is not a good currency area. 

The European story can end only two ways. 

Either member nations will reforge the Eurozone as a true political union, or it will break up. 

There is really no middle ground.

DYI Comments:  If the U.S. experiences a deflationary smash(severe recession) generating a world wide recession with pockets of depressed countries a high probability that the Euro will cease to exist. As it stands currently England is trading far more with Asia than the continent of Europe even a mild U.S. recession maybe enough for her to "pull the plug" and exit the union.

Most likely the trade agreements will remain as each country abandons the Euro replacing it with their home currencies.  I find it highly unlikely that a United Europe will be formed.  There is simply too many differences in culture, languages, and geography to pull them together into a Federalist system.

DYI