The absence of a devaluation lever must be considered as a feature, not a bug, in the system. The fault, I am thus arguing, lies not so much in the system’s design as in the inadequacy of national economic and financial policies to take account of the risks that were still associated with the euro. There is another dimension worth mentioning.
A natural starting point for analysis of the benefits and costs of a monetary union is the theory of optimum currency areas, originated by Robert Mundell in the early 1960s, and an important reason for his Nobel Prize in Economics. This literature on optimum currency areas identifies two main costs of a country’s participation in a monetary union.