The euro zone’s major structural problems today

The euro zone today has three major structural problems: 1. Capital mobility between the euro-zone countries has still not been restored (the countries with excess savings lend them to the rest of the world and not to the other euro-zone countries). The allocation of savings in the euro zone is therefore inefficient, there is a loss of potential growth and this lack of capital mobility eliminates the expected gain from monetary unification. It is essentially a confidence problem, partially corrected by flows of public capital (Next Generation EU). 2. The heterogeneity between the euro-zone countries continues to increase, which is normal in a currency area where countries’ comparative advantages can be fully exploited, leading to very different productive specialisations. Despite some recent improvement (thanks to Next Generation EU), policies to reduce heterogeneity remain insufficient and the ongoing increase in heterogeneity between the countries will over time threaten the stability of the euro. But one cannot see a federal budget of sufficient size to correct the heterogeneity being possible. 3. A debt or balance-of-payments crisis in one euro-zone country leads to speculation of a break-up of the euro. In the United States, a debt crisis in one state does not lead investors to expect the demise of the dollar, and there cannot be a balance-of-payments crisis. The ECB must therefore be able to react at any time to avoid a crisis in each country. This risk also raises serious questions about the possibility of restructuring a sovereign debt in the euro zone ; it would disappear only if the euro zone’s federal debt became large.