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At a conference in Montreal, Canada, Alan Greenspan, the former Federal Reserve Chairman, emphasized his belief that the European monetary union "has failed" and said that the only solution to the crisis is a full political union.

In retrospect, the European Union should have first formed a coherent political body first before forming an economic union; in forming the economic union first and acknowledging the sovereignty of the different European states, a "one-size-fits-all" approach was used for distinctly different economies. This "one-size-fits-all" approach was the euro. The euro was adopted as a single currency for countries with different GDP, different exports and imports, different balances of trade, and different niches in the global economy. This forced the same currency policies on different economies that in turn completely relinquished one of their most vital components of regulating their economies: control of their currency. Although the relinquishing of this power to contribute to "greater unity" was noble and worked fine in times of economic prosperity, when the European sovereign debt crisis hit, Eurozone countries started to feel the pain. This pain was exacerbated by the fact that the nations hardest hit, the PIIGS (Portugal, Italy, Ireland, Greece, and Spain), were further at the mercy of a currency that represented the Eurozone as a whole but, unfortunately, couldn't be backed by one whole Eurozone.

If the Eurozone had first completed political integration, it would have been able to react to the European sovereign debt crisis exponentially more effectively. No longer would there have been bickering between Brussels and Athens about austerity measures; no longer would Germans groan about shouldering the majority of the burden of bailouts. If there was political integration, the European sovereign debt crisis could have been approached through the viewpoints not of the Italians, Portuguese, German, French, and so on, but through the viewpoint of the European. One currency policy would have worked then because it was one currency policy that suited one country; granted, individual regions (formerly distinct countries) would have still benefited disproportionately than other regions, but the welfare of the whole would have been prioritized. Moreover, as one political union, former states would be more inclined to directly help others in distress. Mr. Greenspan was right: the only true solution to the crisis is a full political union.

Looking back on this, some may wonder: why weren't the Europeans inclined to form a political union first way back when they contemplated forming an economic union? Simple. Each European country had distinctly rich cultures and treasured their sovereignty, history, and society. Many would think a political synthesis of European states would be blasphemous, akin to destroying a country's entire history and pride. Moreover, the heads of state simply thought dissolving their positions would be inconceivable.

So herein lies the ultimate conundrum for the Eurozone: a political union for Europe is exponentially harder to create than an economic union, but a European economic union ultimately cannot survive without the support of a political union.

Relevant tickers: (FXE), (EUO), (ULE), (ERO), (EU), (GREK), (FEZ), (EWP)

Source: The Paradox Of A European Economic And Political Union