The euro is still a very young currency. When watching the struggles of the European Union over the the euro, it's worth remembering that it too the US dollar a long time to become a functional currency.
Jeffry Frieden looks at "Lessons for the Euro from Early American Monetary and Financial Experience," in a contribution written for the Bruegel Essay and Lecture Series published May 2016. Frieden's lecture on the paper can be watched
here. Here's how Frieden starts:
"Europe’s central goal for several decades has been to create an economic
union that can provide monetary and financial stability. This
goal is often compared, both by those that aspire to an American-style
fully federal system and by those who would like to stop short
of that, to the long-standing monetary union of the United States. The
United States, after all, created a common monetary policy, and a
banking union with harmonised regulatory standards. It backs the
monetary and banking union with a series of automatic fiscal stabilisers
that help soften the potential problems inherent in inter-regional
variation.
Easy celebration of the successful American union ignores the fact
that it took an extremely long time to accomplish. In fact, the completion
of the American monetary, fiscal, and financial union is relatively
recent. Just how recent depends on what one counts as an economic
and monetary union, and how one counts. Despite some early stops
and starts, the United States did not have an effective national currency
until 75 years after the Constitution was adopted, starting with
the National Banking Acts of 1863 and 1864. And only after another
fifty years did the country have a central bank. Financial regulations
have been fragmented since the founding of the Republic; many were
federalised in the 1930s, but many remain decentralised. And most
of the fiscal federalist mechanisms touted as prerequisites for a successful
monetary union date to the 1930s at the earliest, and in some cases to the 1960s. The creation and completion of the American
monetary and financial union was a long, laborious and politically
conflictual process.
Freiden focuses in particular on some seminal events from the establishment of the US dollar. For example, there's a discussion of "Assumption," the policy under which Alexander Hamilton had "the Federal
government recognise the state debts and exchange them for Federal
obligations, which would be serviced.This meant that the Federal governments
would assume the debts of the several states and pay them
off at something approaching face value." But after the establishment of a federal market for debt, the US government in the 1840s decided that it would not assume the debt of bankrupt states. A variety of other episode are put into a broader context. In terms of overall lessons from early US experience for Europe as it seeks to establish the euro, it suggests that while Europe has created the euro, existing European institutions are not yet strong enough to sustain it:
One of the problems that Europe has
faced in the past decade is the relative weakness of European institutions.
Americans and foreigners had little reason to trust the
willingness or ability of the new United States government to honour
its obligations. Likewise, many in Europe and elsewhere have doubts
about the seriousness with which EU and euro-area commitments
can be taken.
Just as Hamilton and the Americans had to establish the authority
and reliability of the central, Federal, government, the leaders of the
European Union, and of its member states, have to establish the trustworthiness
of the EU’s institutions. And the record of the past ten
years points to an apparent inability of the region’s political leaders to
arrive at a conclusive resolution of the debt crisis that has bedevilled
Europe since 2008. ...
The central authorities – the Federal government in the
American case, the institutions of the euro area and the EU in the
European case – have to establish their ability to address crucial
monetary and financial issues in a way acceptable to all member
states. This requires some measure of responsibility for the behaviour
of the member states themselves, which the central authority
must counter-balance against the moral hazard that it creates. In the American case, the country dealt with these linked problems
over a sixty-year period. Assumption established the seriousness of
the central government, but also created moral hazard. The refusal to
assume the debts of defaulting states in the 1840s established the
credibility of the Federal government’s no-bailout commitment. Europe today faces both of these problems, and the attempt to
resolve them simultaneously has so far failed. Proposals to restructure
debts are rejected as creating too much moral hazard, but the
inability to come up with a serious approach to unsustainable debts
has sapped the EU of most of its political credibility. Both aspects of
central policy are essential: the central authorities must instil faith in
the credibility of their commitments, and do so without creating unacceptable
levels of moral hazard.
This is not, of course, to suggest that the European Union should
assume the debts of its member states. Europe’s national governments
have far greater capacity, and far greater resources, than did
the nascent American states. But the lack of credibility of Europe’s
central institutions is troubling, and is reminiscent of the poor standing
of the new United States before 1789.
The US monetary and financial architecture evolved over decades, but in a country that was somewhat tied together with a powerful origin story--and nevertheless had to fight a Civil War to remain a single country. The European Union monetary and financial organization is evolving, too, but I'm not confident that the pressures of a globalized 21st century economy will give them decades to resolve the political conflicts, build the institutions, and create the credibility that the euro needs if it is to be part of broadly shared economic stability and growth in Europe.