Optimum currency area?

There are many opinions about Greece, if the country should stay or leave the Eurozone, or the entire union for that matter. For a moment let us forget about the struggle of Varoufakis, Schäuble and Diesselbaum.

What is a optimum currency area? Do we have it or not?

Important aspects of a currency area is labour mobility across the region, capital mobility, risk sharing systems as taxation redistribution, similar business cycles across the region. Other things mentioned are homogeneous preferences, commonality of destiny – Solidarity.

We have capital mobility and that is probably the only thing we have. Considering labour mobility in the EU, it’s quite complicated since we speak different languages. Often it’s the unskilled workforce and the specialist that move. But what about the big bunch in the middle? We do not share the same taxation system, and the various businesses across the union are totally different, so are the objectives, goals and culture of the union member states.

No, we don’t have an optimum currency system. And I haven’t even mentioned the banking and financial system yet, which is another huge obstacle.

Anyway. Are there any perfect currency systems at all?

Let’s take a look at Sweden, a country revered for prosperity and it’s well organized society. The country is roughly divided in two halves, the rich southern part, and the sparsely populated north. Northerners don’t produce as much as the Southerners, but expects the same standards of schools, hospitals etc. So the Northern region is largely financed by Southern taxpayers. We have the same thing in Italy, where the North subsidize the South. Almost every country have some sort of redistribution of wealth within various regions.

Is this ok? Should richer regions pay for the poor regions?

Well. In a country we accept this. Since we belong to the same nation, we share culture, history, and we have a feeling of same destiny. But even so, even within nations there are struggle about these matters from time to time. Why should we hard working people feed the lazy? This is probably the most common objection.

What would happen if Northern Sweden broke loose and formed it´s own currency? Well, this new currency would fall like a brick for the first months, then it would stabilize. And if you take a really good look, you will notice that Northern Sweden actually has some good industries, like mining, foresting, energy production and wild life tourism, hunting etc – even if the Northerners don’t produce as much as the Southerners.

The Northern currency will stabilize after a while. And soon you will notice intensified border traffic, and a lot of new shops and malls on the northern side of the border. The Southerners just discovered that they could go shopping at the Northern border and save some money. And the mining and forestry are also booming, due to lower prices, so is the tourism.

And after some years the Northern currency is stronger and stable, yet somewhat lower than the Southern currency. And the North is prospering by their own efforts and not by tax redistribution.

And I haven’t even mentioned Greece. But this example is also valid for the European union. Do we want to have strong individual economies, or central planned bureaucracy and tax redistribution from Brussels?

/Robert Toth