The Eurozone Trilemma By Dani Rodik

The formation of the eurozone was a bold idea that had never been tried in the past.  According to Dani Rodik, there were two ways of thinking about what might happen when several independent nations adopted a common currency. There was a minimalist view that appealed to market fundamentalists, and had a narrow constituency primarily among technocrats.  In this view the market would operate without intrusive intervention by national governments.  In a sense, national governments would lose much of their sovereignty, but a supranational government would not arise and interfere with the operation of market forces.  There was also a federalist view that was held by pro- euro elites.  Transnational federal institutions would develop over time and there would be a convergence in the social and cultural models that existed at the national levels.  There were so many different views on how that might happen that it could not be openly discussed even by pro-euro elites.

Things worked well in eurozone for awhile without the need for convergence around a supranational model that might be able to deal with some of the problems that have developed.  However, economic stagnation, and voter dissatisfaction, have given rise to political extremist parties in Europe.  There has been a rise in nationalism, in the absence of supranational institutions, that might have developed if it had been possible to discuss and debate the convergence between national institutions that did not happen.