Euro currency's missing pieces challenge policymakers

matter of years and that s only if the politEconomists often note the euro s lack ical will can be mustered. of a central budget. One central bank the Europe s struggle with economic stagThe alternative to change, according to Frankfurt-based ECB must devise one nation is raising questions about whether economists and some officials, is that votmonetary policy for 19 countries, each of its prized project the shared euro currency ers may turn their backs on an idea that which has its own budget and a different can bounce back or even just survive. promised prosperity but didn t deliver. way of running its economy. When one

Fundamental gaps left at the euro s No less a figure than Mario Draghi, member is hit with a disaster, there s no creation in 1999 are haunting its policyhead of the ECB, said in a recent article it central automatic spending to soften the makers. The euro s missingblow.pieceshavesclear"thatourmonetaryunionisstill come into sharper focus as the European incomplete." And at a Brussels conference A shared budget "is the most important Central Bank prepares to decide Thursday Monday, Pierre Moscovici, the EU s commissing component and also explains why whether more monetary stimulus is needed missioner for economic and financial the eurozone is so fragile," said Paul De to ward off crippling deflation and as affairs, said the current state no growth, Grauwe, a professor at the London School Greece faces a Sunday election that could high unemployment was "unsustainable." of Economics and author of "The conceivably lead to its leaving the 19"If nothing changes in five years, the Economics of Monetary Union." And a nation eurozone. European project will be rejected," fiscal union you can only have within a

Richer countries reluctance to share Moscovici said. Or, as Draghi argued, political union, because you need some taxpayer money with poorer ones is still countries "have to be better off inside than supranational institution that is capable of blocking change. Fixing the euro will be a they would be outside." directly taxing and spending."

In contrast, the U.S. has a large federal budget that means rich states constantly send money to poorer ones without most people giving it one thought. When Florida s real estate boom collapsed, the state government didn t have to take over the busted banks. The Federal Deposit Insurance Corporation did. Meanwhile, federal money kept coming to Florida residents to pay their Social Security pensions, their unemployment insurance and their Medicare old-age health insurance.

Not so in Greece, Portugal and Ireland. When those governments faced bills running into the billions for jobless workers, collapsed banks, pensions and health costs they were bailed out by other European Union nations. But they had to agree to painful budget cuts and tax increases that sank their economies even deeper recession.

That pressure to cut back is one factor keeping European growth slow and unemployment high 11.5 percent overall and 26 percent in shell-shocked Greece. There, the left-wing Syriza party, which is leading ahead of Sunday s vote, has said it plans to reject the bailout conditions, a step that could lead to Greece running out of money and leaving the eurozone.

The troubled countries lack the safety cushion that comes from having their own currency, which would fall in value and make them cheaper places to do business. Instead, they have to cut labor costs.

"So the burden of adjustment ... falls squarely on labor, basically on cutting labor costs," said Simon Tilford, deputy

into director of the Centre For European Reform in London. "That, politically, is a precarious basis for a currency."

The eurozone has added safeguards since the crisis started in 2009, particularly a bailout fund to lend to troubled countries and common banking oversight to keep failing banks from busting government finances. Rules limiting deficits were toughened and countries budgets, labor costs and trade balances subject to common review.

Yet eurozone growth was only 0.2 percent in the third quarter last year and inflation was minus 0.2 percent. Inflation that low is a sign not just of lower oil prices but of weak demand that some fear could persist for years or even decades, like it has in Japan.