I’m a hardcore pessimist on the euro-area — perhaps because I’ve spent too much time on the Great Depression. As the saying goes, give a person a hammer, and everything looks like a nail.
But I’ll concede one thing: if de-coupling is real (and I am sure it is), then the eurozone story makes a bit more sense (not enough sense to make it worthwhile; this is a positive rather than normative post). Here’s why.
Emerging markets should be absorbing capital; developed markets should be providing it. The euro-story is about pushing Europe’s periphery from the former to the latter. Now, you could argue that switching the euro-area’s periphery from net absorbers of international capital to net providers could be accomplished lickety-split if they could devalue (i.e. exit the euro). But the point is that a developed economy should be competing on quality, not price. So ideally they should emerge as net providers of capital on the basis of quality-competitive goods and services. And to do that, nothing better than a transformation of the economy without resort to a devaluation.
So the euro-area story is about dragging the entirety of Europe into modernity. Neat little story.
And the de-coupling bit? Well, this version of transformation (i.e. sans devaluation) is going to take a long time. This is an acceleration of the decoupling process, since decoupling in practice means faster growth in the emerging markets than in the developed ones. De-coupling is another word for ‘income convergence’. And we can all see that the global economy is in the throes of a ‘great convergence’ in prosperity, after many centuries of a Europe-led great divergence.