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Op-ed in the July/August issue of the Berlin Policy Journal

July 1, 2015

American commentary discussing the euro area crisis in recent years has come in many forms, spanning instant and generally uninformed twitterati emotions to lengthy academic expositions. Certainly, economic policy in the United States has shown no sign of pivoting to Asia. As the volume of US opinions on a potential Grexit spike, Europeans must consider several issues while interpreting the proffered solutions.

First and foremost, it must always be remembered that—as with all commentary written about other countries' affairs—American commentary on Europe reflects to some extent domestic politics in the United States. Indeed, it is often written with an eye toward influencing things at home.

This assumed, limited life span for the euro leads many US commentators to fail to … understand how and why the euro works economically and politically.

At least three distinct US schools of thought can be identified, each typically writing critically of European affairs from the perspectives of their own domestic stances.

Left-Wing Keynesians: Many left-leaning American economists, such as Nobel Prize laureates Paul Krugman and Joe Stiglitz, invariably write about the euro crisis with a focus on the dangers of austerity and the need for more fiscal (previously monetary) stimulus. This focus is unsurprising, given how deeply engaged this group is in the ongoing US debate about government spending and fiscal policy. In the face of frequent, draconian Republican budget-cutting proposals at home, it is imperative for Keynesians to oppose all austerity abroad as well, as potential European examples of successful austerity might affect the American political debate. The key feature is the opposition to the general concept of austerity in Europe, while specifics for any given European country differing from the United States—such as large primary deficits or loss of market access making austerity unavoidable—are of less importance in making the arguments.

Right-Wing Free Market Republicans: The right wing of the Republican party has always looked skeptically at European national economies, in particular the European Union and the euro area. The continent is seen as imbued with excessive government, high taxes, and fundamentally socialist economic systems. The recent economic crises in Europe and the slower pace of recovery in comparison to the United States is taken as validation of Republican views. Critical commentary on European affairs focuses on the long-standing points of criticism regarding economic inflexibility, excessive welfare, and overregulation, not least at the EU level. Many economists in this group have always viewed the euro project with skepticism, as the common currency is deemed too radically different from a traditional, theoretically optimal currency area to function properly. Without a sizable central fiscal budget and high levels of labor mobility, for instance, the euro is expected to eventually collapse under its own design flaws.

Right-Wing National Security Hawks: Members of this school see Europeans primarily as free riders on the back of American national defense spending, and strong French and German opposition to the US-led invasion of Iraq in 2003 is a source of lasting animosity to many hawks. This group is generally concerned with maintaining the global US economic and political hegemony, and therefore has always viewed the euro as a potential competitor to the dollar. The recent struggle of the euro is consequently perceived as generally in America's long-term economic interest.

In some ways it could therefore be argued that a euroskeptic majority exists in the United States, albeit one consisting of highly diverse groups each with their individual critique of the European economies.

The "City Upon a Hill" Mentality

A further complicating factor influencing much American writing, especially about the euro, is the often present, if subtly expressed, "city upon a hill" mentality. It is a deeply held axiom that the United States, despite its numerous and often debated lesser flaws, is in its basic institutional design an ideal entity other continental-size economies invariably will have to emulate to survive.

Viewed through such a lens, it is obvious that the euro—at its core an audacious attempt at monetary integration from the bottom-up, and totally unlike historical US development—does not have institutions even remotely resembling the basic tenets of the American political system. And it is highly unlikely that the euro area will ever develop into a fully-fledged federal country like the United States.

Consequently, it is an underlying assumption among many Americans that Europe's single currency is bound to fail eventually, as it is simply too different in design from the American model to succeed in the long run. This assumed, limited life span for the euro then leads many commentators to fail to acquaint themselves fully with the detailed institutional setting of the common currency and to understand how and why the euro works economically and politically.

It should, of course, never be forgotten that many of the same flaws could be pointed out in most European commentary on the United States.

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Jacob Funk Kirkegaard Senior Research Staff

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