Paul Krugman points out that the existence of an independent Canadian dollar – and the fact that Canadians aren't in any hurry to adopt the USD – is something to think about when one ponders the euro project:
[I]t suggests that Europeans made too much of the need for the euro.
The euro project had much more to do with advancing the goal of promoting an ever-close political union than implementing a sensible monetary policy. As the current crisis has shown, a common currency is hard to sustain without a central government that is able to redistribute income from one region to the other. It seems to me as though the people who pushed the common currency hoped that by the time the euro was put under pressure, the central government with the necessary powers of redistribution would be in place.
In contrast with the euro project, the political obstacles associated with a Canada-US monetary union are pretty formidable:
- The notion of a central authority that could reallocate resources from the US to Canada (or the other way around) is difficult to conceive.
- The notion that the US would let another country have anything at all to say about how it conducts its monetary policy is impossible to conceive.
Worthwhile Canadian Initiative 
Well said.
One would hope that Spain and Ireland would be like the gibbeted corpse hanging at the crossroads …
I agree with everything you’re saying here but it has little to do with Krugman’s point.
Krugman, as I understood him, was saying that the people pushing the Euro were using as there sales pitch the idea that a common currency was necessary, not just helpful, for economic success. This would imply that Canada should have a hard time being economically successful without adopting the USD.
It’s Canada’s economic success that makes it a counter example.
Yes and no. There were genuine transaction cost issues. I remember going into the my cousin’s kitchen – her husband is a successful businessman – and being stunned to see jars of change in the ten or so different currencies Kim regularly used on his business trips. There was – and still is – the suggestion that it might be good (for a number of reasons) to have a viable alternative to the $US for international trade/international currency. And why should the US get all of the siegnorage (seignorage?) from those dollarized economies, when one could have Euro-ized economies instead – though it doesn’t seem that this was a major motivation for introduction of the Euro.
But your point about the long-term viability about the necessary redistribution is well taken. This is especially true given the difficulty of comparing per capita GDP when economies differ in the size of the underground economy or the balance between monetized/household production. And as the EU expands and, with it, the differences between rich and poor member states, redistributing becomes even more problematic.
One effect of the EU has been an increase in the total amount of government in Europe, as the Euro-layer gets added to national/state or regional/local layers.
So you’re also right in saying that these supposedly economic projects are also political projects. On Canadian adoption of the $US – perhaps one possibility is that those who advocate it did indeed have a political agenda, namely constraining Canadian economic and social policy to be more like that of the US.
Another point to bear in mind that Euro is a very useful answer for crossword puzzle clues. Perhaps it was all a plot by the NY Times crossword puzzle folks.
Isn’t there any redistributive power in Europe? Every time I’ve been there, I’ve seen infrastructure projects with big signs noting funding from the European Union. Indeed, I’ve seen projects as far away from Europe as Ecuador with EU funding, so there appears to be some budget both for internal transfers and for foreign aid. I would assume that other redistribution measures must also exist.
Now, obviously the continental government in Europe has significantly less power and a smaller budget relative to the size of the economy than the federal governments of Canada and the US. But I just fail to see why this makes the disparities between Germany and Greece such a big problem when the disparities between Alberta and Newfoundland are not.
I guess the response would be that it’s not enough. Or at least, not enough to compensate for the relative lack of labour mobility.
Stephen, i’m going off topic, but you might like this:
I am thinking back to your posts on Ignatieff coming to Laval to talk about climate change. Ajzenstat is a political scientist at McMaster.