PALO ALTO - the United States and Europe are two huge free trade zones, each rich but with short-term problems and immense long-term challenges. Are two single currency areas: the dollar and much of Europe, the euro. The challenges for both are monumental.
But only European currency Union faces uncertainty about his future; No existential crisis is facing America for its currency. Similarities and differences, in particular as regards internal labour mobility, productivity and fiscal policies which propose two economic powers warum-and information, whether the eurozone can develop weather crises on its periphery and a stable single currency area.
Labor mobility from poorer to wealthier areas provides a shock absorber to differential economic hardship. Other natural shock absorber is a falling currency which strongly increased competitiveness in the area. This cannot be done with a single currency and economic adjustment is doubly difficult if laboratory not mobile enough to help reduce regional contractions in income and unemployment.
The reasons for the lower mobility of workers in the euro area than in the States are legion. True, America's original thirteen colonies were a loose Federation, and many Americans themselves as citizens of their State first and US second as late as a century after the revolution. The State was however not fully formed nation with its own shared and deeply rooted history, culture, ethnic identity and religion.
Perhaps the most important cultural component of labour mobility is language. Mississippi to Maine and New York to New Orleans America's written language is the same, and the spoken language is understandable for everyone. Not from Berlin to Barcelona or Rome up to Rotterdam. (Or, for that matter, the Northern, southern China or multilingual India where Hindi of spoken only 42% of the population). For the euro area citizens who speak no significant language, especially English, mobility across national borders is limited at best time in relation to the single currency.
These are the differences that can easily be deleted. While some aspects of culture have become globalized, variation across borders is far greater than it is between us States across Europe. Example, slaughtered until the second half of the twentieth century, today eurozone members regularly each other centuries of the battlefields. On the other hand history is together more among Americans from different countries, unlike fought in the civil war, side by side in the nation's external wars.
All this means that sags in the California residents simply for the mountain States leave; Jobs in production in the upper Midwest are disappearing, migrate people to new jobs in Texas. This pattern is far less common in Europe.
It is also a pattern that has closed the gap (about 40%) between per capita income in America's poorest and richest countries, as labour and capital markets continuously adjust, by you to areas where productivity is higher. Productivity and the per capita income in the euro zone range considerably wider, allowing mobility even more important.
Finally, while different taxation systems among American States, the general tax burden in half is from the federal level. Almost all Member States constitutions require balanced budgets (with exceptions for emergencies). Serious means - American States and municipalities are available under pension and healthcare systems funded long-term fiscal challenges and citizens are living in different countries have a common national budgets, while several radically different central Government fiscal positions facing the citizens of the euro area countries.
Indeed, many observers argue that lack of a common tax system is their main problem the euro area. However, competition of services and taxes is beneficial, not harmful. Still need much stricter limitations with serious and enforceable penalties placed are on maximum fiscal positions and transparency of the euro is to survive.
And it can survive. Those who write off the euro a failure would consider that it is only ten years old. America had historically problems as the single currency area, from the early chaos before the Constitution for the conflict between agricultural and banking interests over the gold standard in the late nineteenth century. Was while the euro is facing strong opposition, not the dollar early sailing always smooth, either.
The euro area countries must first with the sovereign debt crisis, handle their budget deficits and strengthening reduce woefully under banking capitalised. But if the euro is to survive and thrive, beyond the current crisis, it need comprehensive structural reforms to increase internal labour mobility and defuse pressure caused by economic adjustment between the Nations and regions. Citizens will support politicians who suggest work, taxes and other reforms necessary to increase mobility and open questions are whether these reforms are sufficient to overcome language and cultural barriers.
Successive generations of the post-war period the EU initiated European political leaders and currency Union countries would so close together that other great war between you knit become impossible. It is questionable whether monetary Union was necessary in order to achieve this goal. Despite the significant advantages of the single currency (price transparency, lower transaction costs and inflation credibility, just to name a few) t he difficulty the macroeconomic management of such different economies looms larger than ever.
The euro was always a big gamble, a grand experiment. Historic efforts to monetary Union collapsed sometimes, and sometimes have survived several crises. The future of the eurozone may be covered, but it will be boring.
Michael Boskin, currently Professor of Economics at Stanford University and senior fellow at the Hoover Institution, was Chairman of President George H. W. Bush's Council of economic advisers, 1989-1993 Copyright: project syndicate, 2011.
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