There's been so much discussion of the euro's role in the Greek financial crisis that it's easy to forget that many other eurozone countries are suffering too. The economist Lars Christensen has compiled this striking chart comparing the economic performance of euro-based economies (in red) with those not based on the euro (in green):
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Of the 21 euro countries (including Denmark and Bulgaria, whose currencies are pegged to the euro), almost half have seen their economies shrink, in inflation-adjusted terms, since 2007. By contrast, none of the "floaters" — which kept their own currencies — had their economies shrink over the same period. Countries that didn't adopt the euro are doing way better, economically speaking, than those that did.
The shrinking euro economies include two of the largest: Italy and Spain. Also included are Denmark and Finland, which — unlike Greece — have reputations for honest government and sensible economic regulation. Non-euro Iceland was one of the hardest-hit countries in the 2008 financial crisis, yet it still managed to outgrow most of the euro countries over the past eight years.
Christensen believes this isn't a coincidence. For most of the past eight years, the eurozone inflation rate has been too low and the unemployment rate has been too high — both signs that the European Central Bank is doing too little to support eurozone economies. But the ECB's responses have been halfhearted. The central bank even raised interest rates in 2011, when much of the continent was still suffering from a severe recession.
If the euro hadn't been created, these euro-based countries would have 21 different currencies, each managed by its own central bank. Not all of these central banks would have reacted perfectly to the 2008 financial crisis, of course. But it's hard to believe that Italian, Spanish, or Greek central banks would have allowed their countries to suffer as much as the ECB has.
In recent months, there's been some sign of the ECB taking this problem more seriously. It announced a new "quantitative easing" program in January that was similar to a program the Federal Reserve used to get the US economy growing beginning in 2012. In a press release today, the ECB vowed to continue that program. But given how far behind the eurozone has fallen — and the fact that inflation is still very low there — the central bank might want to do even more.
Update: a few people asked how this chart would look if you went back to 2000, around the time of the euro's creation, rather than 2007. The answer: not very different. Europe's 12 worst-performing countries since 2000 were all in the eurozone.
