Europe's public debt crisis has lead to clamorous predictions of the euro zone's imminent breakup. With Greece already threatened by government default, last week attention shifted to Spain, a much larger economy stuck in a downward spiral of 20 percent unemployment, ongoing recession, and a public deficit that's soared past 11 percent of GDP. With richer euro-zone members like Germany balking at a bailout, some analysts argue the only way for these countries to save themselves is by exiting the euro zone and reintroducing their own currencies.
But were an ailing country to leave, it would find itself in the mother of all financial crises as its new currency plummeted on world markets. Furthermore, expulsion by other members is prohibited by Europe's new Lisbon Treaty. And the history of currency unions shows that they aren't held together (or dissolved) on economic grounds but on political ones. It took the U.S. more than a century and many crises to install the dollar as a single currency, says Rutgers University historian Michael Bordo, and that process was ultimately driven by the political goal of creating a stronger union. The same process is happening in Europe: after a decade of only loose coordination between members, the crisis in Greece and Spain is forcing euro zone-wide political control. Greece's budget is virtually administered from Brussels now. EU officials are getting new powers to monitor national deficits. Germany and France are negotiating to coordinate economic policies to reduce future strains. This process will of course be noisy and rough. But breakup is not an option.