The Euro as a common currency is one of the pillars the European Union is built upon. During his time at the helm of the ECB, Mario Draghi stated that without the Euro, there would be no European Union.
Unfortunately, at times of a crisis, the main benefits of having a shared currency disappear. Countries with a sovereign currency have the ability to print their way out of troubles. If you do not hold the EUR printing press, such an option is not on the table.
Another curiosity of the European project comes from the different types of economies under the EUR umbrella. In some parts of the Euro area, tourism is the main revenue stream for governments (e.g., Spain, Greece). In some other parts, financial services (Frankfurt, Amsterdam, Paris). And so on.
For this reason, when interpreting economic data out of the European Union, investors must pay special attention to it. The data is always presented as an average at the European Union level, and then by countries. The data by country reflects the difficulty of managing the Euro and how challenging it is for the ECB to set the right monetary policy for the Euro area as a whole.
Different Economies, Different Problems, Same Currency
The European project had many detractors throughout time. History tells us that, sooner or later, currency unions are doomed to fail. The most cited reason is that you cannot apply the same medicine (i.e., monetary policy) to all patients (i.e., countries).
Yet a flexible central bank like the ECB proved that it can. And it to this point, has.
The recent industrial production data for June 2020 shows how diverse the economies in the Euro area are. From a 4% increase in Ireland to -15% decrease in Portugal, the range is so big that it seems impossible for the central bank to approach the problem.
The economic crises are known for policymakers’ innovation capabilities. New tools are brought to the discussion table, although they may not function properly at first implementation. In time, after the crisis passes, there is time to fine-tune them, but at the moment of their introduction, the aim is to solve the problem. Period.
ECB chose to deviate from capital keys in its quantitative easing program. In other words, its flexibility allowed it to buy more national debt of countries most affected by the crisis, and less of countries that weathered the crisis better.
And this is how you solve the issue of having a shared currency. If the ECB remains as proactive as it was since the 2008-2009 Great Financial Crisis, the Euro is here to stay.