The Irish banking crisis illustrates the euro makes little sense, because the European Union lacks taxing, spending and regulatory authority critical to managing a modern economy.
The U.S. federal government regulates banks and guarantees deposits because continuously functioning banks are as essential to modern commerce as uninterrupted electricity and the Internet.
When a bank approaches insolvency, the Federal Deposit Insurance Corp. zeros out the shareholders and merges the troubled entity into a healthy institution. The latter receives an FDIC payment to cover the gap between the failed bank's assets and liabilities.
In the wake of the recent crisis, 300 regional banks failed, testing the resources of the FDIC, but the FDIC is backed up by the U.S. Treasury and the
Bank of America
were too big for the FDIC to handle, and the Treasury and Fed stepped in with equity investments and loans, which would not have been possible without Washington's ability to sell bonds and print money.
Ireland, not the EU, regulates and ensures the solvency of Irish banks.
Dublin's treasury does not have the ready cash or borrowing capacity to adequately recapitalize troubled Irish banks, without pushing interest rates on its sovereign debt so high as to make its national budget woes wholly unmanageable.
Without an EU rescue, Ireland's banks default, its government defaults, or its citizens face cuts in government services likely too draconian to be possible.
If Ireland still had its own currency, it could print money to recapitalize its banks -- that is exactly what the Treasury and Fed can do for the FDIC, Citigroup, Bank of America, and other financial institutions.
Printing money would push down the Irish pound against the dollar and other European currencies, result in some inflation and lower Irish living standards, as bank losses were spread over the entire economy. Over several years, however, Ireland's trade balance would improve, and absent other Celtic missteps, the Emerald Isle would work out of its mess.
Lacking the power to print money, Dublin must accept aid from the European Central Bank and stronger EU governments. This creates much political embarrassment for Irish politicians and leaders in donor capitals, resulting in theatrics and arduous negotiations.
Dublin makes the usual claims that it can handle its own problems, flight from Irish debt follows as well from the debt of other weak EU governments, and the euro weakens against the dollar.
Quick, decisive action becomes impractical when it is most needed, and nervousness abounds about contagion and the eurozone breaking apart.
Among the 50 states, the U.S. federal government significantly equalizes health care and social spending by transferring tax revenue from rich states to poorer jurisdictions.
Germany, like New York, greatly prospers by participating in a huge single continental market, but Brussels cannot tax Germany to subsidize health or retirement benefits in Greece in the manner Washington taxes New York to subsidize Medicaid and social security payments in Mississippi.
Keeping its vast wealth to itself, Germany provides its citizens with gold-plated employment security, health care and retirement benefits, portrays itself a model of euro-efficiency, and lectures Greece and others on Teutonic frugality.
Greece, Portugal and others have borrowed recklessly to satisfy their citizens' expectations for benefits on a par with Germany and now face severe austerity measures. If they still had their own currencies, devaluation would significantly help these countries manage their way out of debt as they trimmed their budgets less harshly.
With each crisis, the prospect of troubled nations dropping the euro and returning to national currencies emerges. Ultimately, this motivates Germany and others to come to their aid, but not without imposing more severe austerity than would be necessary if currency union were accompanied by EU taxation to fund social services and other functions of national government.
The Treaties of Rome and Maastricht provide Brussels with key powers for building a single market for private goods and services but on banking and social services, those deny Brussels the taxing, spending and regulatory powers to act as a sovereign government.
Unless this void is filled, the EU should not be printing money.
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Professor Peter Morici, of the Robert H. Smith School of Business at the University of Maryland, is a recognized expert on economic policy and international economics. Prior to joining the university, he served as director of the Office of Economics at the U.S. International Trade Commission. He is the author of 18 books and monographs and has published widely in leading public policy and business journals, including the Harvard Business Review and Foreign Policy. Morici has lectured and offered executive programs at more than 100 institutions, including Columbia University, the Harvard Business School and Oxford University. His views are frequently featured on CNN, CBS, BBC, FOX, ABC, CNBC, NPR, NPB and national broadcast networks around the world.