A Trio of Trilemmas

The Economist July 6,2013 European leaders have enjoyed a period of respite from financial turmoil since last summer.But the euro remains vulnerable.Portuguese bond yields soared this week as the ruling coalition fractured.Ireland's economy has contracted for three quarters in a row.A proper banking union is a long way off.The euro's fragility is underlined by a new study by Michael Bordo of Rutgers University and Harold James of Princeton University.The two economic historians look at the flaws in another supposedly

European leaders have enjoyed a period of respite from financial turmoil since last summer. But the euro remains vulnerable. Portuguese bond yields soared this week as the ruling coalition fractured. Ireland＇s economy has con- tracted for three quarters in a row. A proper banking union is a long way off. The euro＇s fragility is underlined by a new study by Michael Bordo of Rutgers University and Harold James of Prince- ton University. The two economic histo- rians look at the flaws in another suppos- edly impregnable international monetary regime, the gold standard, and find rea- sons to fret about the single currency. The parallels between the euro and the gold standard are not exact. The sin- gle currency is a monetary union with the European Central Bank at its apex; the gold standard had no such institution. The euro floats against other currencies such as the dollar, and the ECB is obliged to maintain price stability rather than convertibility into gold. But for the 17 states that now share the single cur- rency, it represents a new gold standard in that their exchange rates with each other are fixed.