currencyThere’s at least some evidence that the adoption of the euro across a wide range of European economies was a mistake because of the substantial imbalances between economies. On the other hand a single currency does have many benefits.
If the euro were to break up soon, are there optimum currency areas larger than a single country that could/should replace it?
Optimal currency areas are just hypothetical economic zones with similar patterns of debt, inflation and (usually) sectoral composition. As a rule of thumb, an optimal currency area should continue to expand until the benefits of lower transaction costs no longer outweigh the negatives of over-generalised monetary policy.
Four broad groups in Europe might be:
BENELUX, France, Germany and Denmark
Portugal, Greece, Spain, Italy
Eastern Europe
The UK and Ireland
However, don’t forget that currency union distorts exchange rates in a number of other ways. For instance, the Euro helps devalue German exports, while at the same time cutting the costs of borrowing for Greece. So there are more considerations than the basic inequality I suggested in the first paragraph for what might be considered an “optimal” area by those countries involved.
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