The launch of the single currency in 1999 rekindled the European Union’s momentum toward deeper integration. And yet progress during its first decade of low interest rates was undermined by bulging budgetary and current account deficits in several eurozone sovereigns that brought them to the brink of default in 2010. The second decade of sluggish and lopsided recovery since then has deeply scarred Europe’s social fabric and widened the divide between the single currency’s winners (Northern European nations) and losers (Mediterranean countries).
This article provides a retrospective, cast in the form of a play in five acts, of the EU’s protracted quest for monetary union that begins by explaining how the euro crisis was seeded. In Act I the authors recount the quest for a European Monetary Union and document the gradual deepening of monetary cooperation among member states. The launch of the euro in 1999, as presented in Act II, held out promise for the single currency, but was later broken by a euro crisis that is viewed (in Act III) through the lens of the optimal currency area construct. The likely future of the euro, now in its 20th year, is projected in Act IV in terms of a “muddling through” scenario. Act V closes by providing a view of two other possibilities issuing from the pandemic—one that leads to a splintering of the European monetary union, and the other to the passage of bold reforms that end up strengthening the union.