In the National Post, Michael Walker has an article on the great economist, Milton Friedman and his influence on Canada. He also includes this interesting comment on the Euro from a Bank of Canada conference in 2000:
When, at that same Bank of Canada Conference in 2000, Milton Friedman was asked about the future of the Euro, he said:
“I think the Euro is in its honeymoon phase. I hope it succeeds, but I have very low expectations for it. I think that differences are going to accumulate among the various countries and that non-synchronous shocks are going to affect them. Right now, Ireland is a very different state; it needs a very different monetary policy from that of Spain or Italy… On purely theoretical grounds, it’s hard to believe that it’s going to be a stable system for a long time… “You know, the various countries in the Euro are not a natural currency trading group. They are not a currency area. There is very little mobility of people among the countries. They have extensive controls and regulations and rules, and so they need some kind of an adjustment mechanism to adjust to asynchronous shocks — and the floating exchange rate gave them one. They have no mechanism now.
“If we look back at recent history, they’ve tried in the past to have rigid exchange rates, and each time it has broken down. Nineteen ninety-two, 1993, you had the crises. Before that, Europe had the snake [the first attempt at European monetary cooperation in the 1970s], and then it broke down into something else. So the verdict isn’t in on the Euro. It’s only a year old. Give it time to develop its troubles.”
It is highly unfortunate for the European countries that they did not pay more attention to these piercing insights — and that Milton Friedman is no longer here to hold them to account.
Update: Reason.tv did a tribute to Friedman last year:
