Milton Friedman on the Euro

New Perspectives Quarterly has an interview with Milton Friedman:

Germany’s problem, in part, is that it went into the euro at the wrong exchange rate that overvalued the deutsche mark. So you have a situation in the eurozone where Ireland has inflation and rapid expansion while Germany and France have stalled and had the difficulties of adjusting.

The euro is going to be a big source of problems, not a source of help. The euro has no precedent. To the best of my knowledge, there has never been a monetary union, putting out a fiat currency, composed of independent states.

There have been unions based on gold or silver, but not on fiat money—money tempted to inflate—put out by politically independent entities.

At the moment, of course, Germany cannot get out of the euro. What it has to do, therefore, is make the economy more flexible—to eliminate the restrictions on prices, on wages and on employment; in short, the regulations that keep 10 percent of the German workforce unemployed. This is far more urgent than it would otherwise be if Germany were not in the euro.

Fiat money and politics.