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Macroeconomic Issues Viewpoints

The Tragedy of the Euro

by Philipp Bagus


Philipp Bagus is a professor of economics at King Juan Carlos University in Madrid. He is also assistant editor of the journal Procesos de Mercado: Revista Europea de Economía Política. His main research areas are monetary theory and business cycle theory. He has published articles in numerous academic journals and other scholarly outlets. Bagus is author of The Tragedy of the Euro and, with David Howden, of Deep Freeze: Iceland’s Economic Collapse.

In your book, The Tragedy of the Euro, you argue that the euro project actually started out as a liberal/Christian notion and was then “captured” by the socialist, centrist, “big government” viewpoint. What happened?

It is quite clear that from the beginning of the European Union the advocates of two different ideals strove to impose their preferred form on the European project, and the euro is key to understanding how this struggle has played out. As I say in the book, the founding fathers of the European Union, Robert Schuman from France, Konrad Adenauer from Germany, and Italy’s Alcide De Gasperi, were all German-speaking Catholics and Christian Democrats. Their ideals were the classical cultural values of Europeans and Christianity, which see sovereign European states as being the defenders of private property rights and the creators of a free market economy in a Europe of open borders. The natural boundaries of Europe, in the liberal vision, were the limits of Christian Europe.

This liberal vision’s greatest achievement was the Treaty of Rome in 1957. The Treaty underlined four basic liberties for Europe: the free circulation of goods, the free offering of services, free movement of finance, and freedom of movement for European citizens. These essential rights had been achieved in Europe during the 19th century, but they were then swept aside by the age of nationalism and socialism that ended with the Second World War.

This idea of freedom is extremely powerful as a limit on “big government” philosophies. Citizens who find themselves in a socialist state that is determined to redistribute wealth through “progressive” taxation in order to build a massive welfare state would be able to vote with their feet by moving to a state with a lower tax burden. All you need to achieve this is freedom of movement for goods, people, services, and finance, together with a respect for private property.

In this vision there is not only no need to create a European superstate, such a concept is in fact antithetical to the vision. The classical liberal point of view needs many competing political systems, as had been the case in Europe for centuries. Competition on all levels is essential to the vision. It leads to coherence as product standards, factor prices (factors being all the elements, including labor, needed to create products and services) and especially wage rates, tend to converge.

Capital moves to where wages are low, bidding them up; workers on the other hand move to where wage rates are high, bidding them down. You have the basis for efficient, competitive economies, while political competition ensures the most important European value: liberty.

Self-evidently, the “superstate” approach is very much in favor of “big government,” since such a state works to establish a homogeneous set of conditions within its borders. There is nowhere to move to that is different, so the citizens are “captured” and freedom of movement is rendered meaningless. Having different national tax sovereignties is the best protection against the tyranny of “big government.”

Politicians who aim for big government have to have policies that appeal to the largest possible base of voters. It is natural and logical therefore for them to offer “redistributive” taxation strategies which promise a socialist “nirvana” of free housing, free education, free healthcare, and early and large pensions to all. This policy garners votes and puts socialist politicians in power, but what this strategy lacks is a way to pay for the socialist vision of a vast welfare state. As we will see, this point has returned to haunt the euro and may well be instrumental in its eventual demise. The current plight of Greece sketches out the possible fate of all.

The time-honored way for politicians—and kings and emperors before them—to pay for unaffordable policies is to produce money. The idea, or rather, the myth, of controlled inflation is therefore deeply embedded in the socialist vision (“control” is illusory since booms and busts are endemic to an inflationary stance, as Austrian business cycle theory demonstrates).

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Further reading


  • Bagus, Philipp. The Tragedy of the Euro. Auburn, AL: Ludwig von Mises Institute, 2010. Online at:
  • Bagus, Philipp, and David Howden. Deep Freeze: Iceland’s Economic Collapse. Auburn, AL: Ludwig von Mises Institute, 2011. Online at:
  • Connolly, Bernard. The Rotten Heart of Europe: The Dirty War for Europe’s Money. London: Faber & Faber, 1997.
  • Huerta de Soto, Jesús. Money, Bank Credit, and Economic Cycles. 2nd English ed. Auburn, AL: Ludwig von Mises Institute, 2009. Online at:
  • Huerta de Soto, Jesús. The Theory of Dynamic Efficiency. New York: Routledge, 2009.
  • Larsson, H. A. “National policy in disguise: A historical interpretation of the EMU.” In Jonas Ljungberg (ed). The Price of the Euro. New York: Palgrave MacMillan, 2004; pp. 143–170.
  • Marsh, David. The Euro: The Politics of the New Global Currency. New Haven, CT: Yale University Press, 2009.
  • von Mises, Ludwig. Human Action: A Treatise on Economics. Indianapolis, IN: Liberty Fund, 2010.


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