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EMU -- Is it time to drop the M? Keith Savard July 9, 2012   Capital Markets | Europe | Global Economy | Public Policy Publisher: Milken Institute

Does a single currency for the euro zone work? Will it ever? That's the issue explored in "EMU -- Is it time to drop the M?"

The Economic and Monetary Union (EMU) is synonymous with the euro zone, which for the past two years has been inexorably linked to some form of debt crisis. On June 27-28, for the 20th time since the euro crisis began, European leaders held a summit in an attempt to diffuse once again the most pressing problems and establish a long-term plan for economic growth and stability. As in several previous summits, they were clever enough to navigate the political obstacles and craft a set of measures designed to boost market confidence -- albeit perhaps for only a short time.

There remains, however, an underlying concern among many market participants and analysts that the single-currency euro system is fundamentally flawed and that the offered prescriptions are either unworkable politically or fall short of dealing with issues of festering debt and competitiveness. This raises the question of whether it is time to abandon the monetary union and euro in favor of a return to multiple exchange rates. The initial costs would undoubtedly be high in terms of transition costs, lost output and the denting of European pride, but ultimately could be less than the mounting price tag from a long parade of emergency stopgaps.