Opening paras of my latest at The National Interest
As the euro zone stumbles towards a seemingly inevitable collapse, it is easy to blame the politicians involved or the whole idea of a common currency. The outcomes of the latest top-level meeting, including a pledge to create a single euro-zone banking supervisor and a relaxation in conditions for lending to Spain, are welcome enough but seem, yet again, to be too little, too late to save the common currency.
In reality, the real problem is not with the euro but with the institution set up to manage it, the European Central Bank. The idea behind its creation—a central bank completely independent from government control—is detached from economic reality.
The ECB’s disconnectedness was evident in the decisions by President Jean-Claude Trichet to raise interest rates twice during the course of 2011, at a time when the danger of complete collapse was already evident. Although these decisions were subsequently reversed, they killed any chance that Europe would grow its way out of the debt crisis.