Will the euro survive into the long term?

We believe the following logic will determine whether the euro survives into the long term: The euro zone meets none of Mundell’s criteria for an optimal currency area: labour mobility is weak, capital mobility has disappeared and the euro-zone countries have very different productive specialisations. This ought to lead to a break-up of the euro zone and to the demise of the euro. The ECB’s highly expansionary monetary policy is currently preventing the euro zone from breaking up: the very low long-term interest rates are keeping the euro-zone countries fiscally solvent and are preventing another public debt crisis, and therefore a break-up of the euro zone. But the ECB cannot keep this policy in place forever , due to the imbalances that it creates (weakening of financial intermediaries, bubbles, excessive taxation of savers, capital outflows, zombie firms, etc.). So there are two possibilities: either institutional reforms are carried out in the euro zone while the ECB ensures its stability, preventing a break-up (sufficiently large federal budget, e urobonds , etc.); or these institutional reforms are not carried out and the euro disintegrates when the ECB has to abandon its policy of zero or negative interest rates. Exiting the euro would be extremely costly, due to the external debt denominated in euros, which makes a voluntary exit from the euro unlikely. But in the event of a public debt and balance-of-payments crisis, exiting the euro would become inevitable as countries could no longer finance themselves from within the euro zone. Only a few years remain ( while the ECB ’ s interest rates remain very low) to reform the euro zone’s institutions.