The Euro as Politics.

• Author: Colombatto, Enrico
• Position: Book Review

The Euro as Politics By Pedro Schwartz London: Institute of Economic Affairs, 2004. Pp. 214, 12.50 £ paperback.

Pedro Schwartz's past contributions to the economics of European monetary integration stand out for clarity, depth, and persuasiveness. The Euro as Politics is no exception. Although he does not refrain from discussing technical issues, he succeeds in synthesizing fairly complex topics into simple notions that are easily accessible to the layman, but at the same time stimulating for the professional.

The book's thesis is both simple and powerful. Although the author does not forget his past opposition to the introduction of the euro, he points out in the various chapters of this work that the traditional economic debate on the pros and cons of the euro is misleading. In a free market economy, performance depends on individual preferences and entrepreneurship rather than on the name of the currency or of the central banker. In contrast, in a regulated economy, where competition is subject to normative constraints and political discretionary power, the currency does play a role.

It follows, then, either that the European Union (EU) project is indeed about free-market economics, so that the euro issue has little importance or that the EU project is not really inspired by the principles of economic freedom, in which case the euro should be evaluated as a more or less appropriate instrument to achieve the goals of a regulated economic system or to stimulate the demand for some kind of regulation. Put differently, analysis of the euro at the EU federal level should move from the technicalities of monetary economics and currency areas to the more articulated aspects of constitutional design and ordinary politics, whereas the analysis at a national level should compare the benefits and losses of the euro with those of the various national EU currencies, some of which have been associated with reasonably free economic structures, others with highly distorted structures.

The book's outline reflects this research strategy. Part I is devoted to portraying the euro realistically. Schwartz notices that in general the perceived transition to the euro has been successful. He adds that most Europeans actually believed that something went wrong because prices generally shot up during the conversion. Nevertheless, the basic point holds true: although the man in the street blamed producers-retail or wholesale traders who allegedly took advantage of...