As the euro rides high, an unhealthy sense of complacency pervades European capitals about the currency’s long-run viability. For while cracks in the euro’s very foundations are widening, European policymakers all too often blindly trumpet its moment in the sun without paying any regard to its longer-run weaknesses. By so doing, they make it all the more likely that too little will be done too late to put the euro on a more sustainable footing that might ensure its survival.

One can well understand the pride that European policymakers are taking in their currency some seven years after it was launched in 1999. After all, European long-term interest rates are now considerably lower than those in the US, inflation in the eurozone is well anchored and the euro is now very much stronger in the international currency market than it was at the time of its launch. If that were not sufficient reason for pride, the euro has now comfortably displaced the dollar as the world’s pre-eminent currency in the international bond market.