When financial crisis screwed up the euro in '08, I was mystified. The fundamental problem was that the EU had a single currency but multiple sovereign states with their own fiscal policies that could put them into debt. In a country like the US, our national debt is ultimately secured as a last resort by our ability to print money to pay it off if need be; doing that would be bad, but not as bad as defaulting altogether. The countries of the EU don't have that option, because the fiscal policy (government spending) is decoupled from the monetary policy (currency controlled by the central bank), which can wreak all kinds of havok. As it now has done.
This is such an obvious economic problem that when they created the euro in the first place, I assumed that the architects of the policy had some kind of plan I just didn't understand. So it was baffling when things blew up the way they did. Surely folks who think about economics all day had seen this threat coming?
Finally I saw a speech from George Soros about the crisis which included an explanation of the mystery: the politics of the EU are such that it becomes more tightly bound by progressively responding to expected crises.
I contend that the European Union itself is like a bubble. In the boom phase the EU was what the psychoanalyst David Tuckett calls a “fantastic object” – unreal but immensely attractive. The EU was the embodiment of an open society –an association of nations founded on the principles of democracy, human rights, and rule of law in which no nation or nationality would have a dominant position.
The process of integration was spearheaded by a small group of far sighted statesmen who practiced what Karl Popper called piecemeal social engineering. They recognized that perfection is unattainable; so they set limited objectives and firm timelines and then mobilized the political will for a small step forward, knowing full well that when they achieved it, its inadequacy would become apparent and require a further step. The process fed on its own success, very much like a financial bubble. That is how the Coal and Steel Community was gradually transformed into the European Union, step by step.....
The Maastricht Treaty was fundamentally flawed, demonstrating the fallibility of the authorities. Its main weakness was well known to its architects: it established a monetary union without a political union. The architects believed however, that when the need arose the political will could be generated to take the necessary steps towards a political union.
But the euro also had some other defects of which the architects were unaware and which are not fully understood even today ....
The whole talk is worth reading, as is a long follow-up article Soros wrote for the New York Review of Books.