Now let's consider the case for pessimism about the Eurozone.
But of course, you should view this video
together with its companion on the case for optimism.
The first point is that the Eurozone is probably not what is called
an optimum currency area by economists.
That is the economically weaker economies in the Eurozone
will prefer a currency which is weak
and a rate of inflation which is relatively high
to, in some regards, stimulate their economies.
Whereas the stronger economies in the Eurozone with higher productivity
will prefer tighter money and will not necessarily want
this inflation induced depreciation of the currency.
The wealthier and more influential countries such as Germany
in the past have gotten their way on this.
So it means that the poorer Eurozone countries
are perpetually facing a tighter and more restrictive monetary policy
than they ideally would like.
We explain this point in more detail in our video unit on optimum currency areas.
The point is, sooner or later,
the economically weaker countries will ask themselves
"Why are we in this currency area?
On an ongoing basis it is damaging our economies."
A second point is this, at least as of 2012,
none of these so-called austerity plans
for the troubled economies have worked yet.
Rates of unemployment remain high across the board
in the countries which have experienced financial crises.
Even if they eventually work, it appears that at a bare minimum,
it involves say three to five years of economically very troubled times
and perhaps a lot of political confrontation.
So again, sooner or later,
if you are a country which has yet to go through this ringer,
you might say well if I'm in the Eurozone,
this will happen to me sooner or later.
Maybe I should consider getting out while the going is good.
A very simple question to ask is
"Was the European Union pre-Euro really so bad"?
It seems it wasn't.
And no matter what you think of the current state of affairs,
there is a nostalgia for going back to how things were.
And the more that troubled economic times persist,
perhaps the stronger this nostalgia will become.
There have been plenty of different economic plans
to address the economic problems in the Eurozone,
but they all seem to have one thing in common.
They do what is called 'kicking the can down the road'.
That is, they postpone a lot of the tough decisions.
They patch over problems.
They address liquidity problems, but they don't really resolve
who in the Eurozone is going to take the losses from all of these bad loans
and who is willing to raise their hand and admit to their voters
'our country is going to take these losses'.
So it seems that the ways the problem has been dealt with
are really postponing tough decisions
and that too is a sign that maybe there's not ultimately a will
to make those solutions work.
A core reason to be pessimistic about the ongoing survival of the Eurozone
is simply that as of 2012, it involves 17 different nations.
And for the most part those nations have to generate
a fair amount of agreement on how to move forward.
If we think about the United States
and how difficult it is to get agreement on moving forward in just one nation,
it's then easy to extrapolate to see the difficulties
of getting 17 nations on board.
Of course, those nations are all democracies, they have electorates.
Typically, they have coalition governments and have to please coalition partners.
They have independent judiciaries
which may rule against various aspects of Eurozone reforms,
or slow them down or hold them up in various ways.
In some cases, such as Ireland, there may be a requirement for referenda.
And in general, it is hard to change EU treaties
and a lot of the potential suggested solutions to Eurozone problems
do involve treaty changes.
When you add up all of these roadblocks
and put them together and think of them as distributed against 17 different nations,
it's fairly easy to come to the conclusion that 'Yes, there may well be solutions',
but to get them through and implemented and accepted by those 17 nations,
with all of these political checks and balances,
well, that's going to be very hard to do.
We need to think very carefully about what really counts
for good news in the Eurozone.
The bar really has been lowered.
So if borrowing rates come down or if there's more liquidity
or more loans are made to troubled banks
or there are more ECB purchases of securities of troubled nations,
those are counted as a kind of gain.
And maybe they're a gain in the sense of avoiding something even worse happening.
But the real question is,
'Will there be a resumption of economic growth in the Eurozone?'
And until that's happening, well, the gains really aren't there.
And as of 2012, the Eurozone again is entering recession
and the prospects on that front seem fairly grim.
Over time there's a very real danger
and you can think of that danger as being represented by an inverted pyramid.
So at the very beginning you have Greece in trouble.
And then think of the rest of the Eurozone nations
as backstopping Greece in some manner.
And then it spreads to Portugal,
and then to Spain, and possibly to Italy,
Ireland as well.
So what you're doing is putting more countries
on the top of the pyramid, requiring support,
and there are fewer countries on the bottom of the pyramid
being able to offer that support.
So over time, as the pyramid inverts,
the countries which are propping up all the others
find they have fewer fiscal allies
and they're accepting greater potential liabilities.
And this may well be an unstable process.
We also need to ask the question 'How fiscally sound is Germany itself?'
The German debt to GDP ratio is already over 80 percent.
And the rate of childbearing in German families is among the lowest in Europe.
On top of all that, Germany has what is sometimes called bailout fatigue.
That is, they have a long history of having bailed out Eastern Europe.
And the German citizenry is in general pretty skeptical of the idea of balance.
The bottom line is that over time maybe it is the case
that the economically weak countries eventually will leave the Eurozone.
If we look at the broader sweep of human history,
there has never been a currency union without a corresponding fiscal union,
which has lasted very long.
Why should the current Eurozone be an exception?
You don't have to think the entire Eurozone
will disappear, dissolve or go away.
But it appears, when you consider the case for pessimism,
there actually are some pretty good reasons for wondering whether
the Eurozone as we currently know it will last.