The problem is that monetary policy is not set on a country by country basis. The economic cycles of countries differ and trying to control monetary policy on a global level leads to policies that do not help any country.
Still, it worked before. For example Germany used to be a lot of little states with different rulers and different currencies. The money union worked out well. And even within a country there are strong and weak economic regions. That alone does not seem to stand against a common currency.
I suppose even the US has different parts with different economic cycles and different economic strength.
Your point about the US is valid. However as their national debt is $15 trillion they aren't exactly a model economy.
Why are people so obsessed about the debt of sovereign governments these days?
Think about it like this: there is (virtual) money in MMO games. Gold in World of Warcraft, ISK in Eve Online, or whatever. In an in-world accounting sense, this money is a debt (liability) of whoever runs the system. But it is ridiculous on the fact of it to worry about the total amount of money in those systems.
So why is their this obsession with the debt?
The most immediate reason is this gut reflex of "it needs to be paid back". But what one has to realize is that, for a monetary sovereign, paying back the debt is just exchanging one type of liability against another. The debt is money that has already been spent. Paying it back does not create new financial assets, it is just an asset swap. Why on earth would that be problematic?
The other objection is that the interest paid on debt causes an undue redistribution of wealth. That point is one of ignorance: a monetary sovereign effectively sets the interest rate that it pays on its outstanding debt - that is what the monetary policy of the central bank is about.
Seeing the true nature of money is initially scary, and perhaps this is what stops many from a deeper understanding. I can only hope that future generation will make fun of us for the way we are thinking about money.
I just checked with Wikipedia: the unification of Germany happened in 1871. Before then there were sometimes even ferocious wars among the states in Germany, including the Thirty Years War.
That is one reason why people had high hopes for Europe: today it seems unthinkable to have a war between states of Germany (they don't have their own military either). Perhaps one day it could be as unthinkable to have war between European states.
It already is, it is not conceivable that any country in the euro monetary union will attack militarily another one.
Actually I think that this crisis will show that countries will also be able to do big sacrifices to save other countries economically.
But the US (and UK) are prepared to monitize their debt via QE which Germany is vetoing. And the US allows internal bankruptcy, with a legal framework.
Then why would it ever make sense for Ecuador to tie its monetary policy directly to that of the US? That is, what you are saying is obvious was not obvious to the Ecuadorians.
I don't know anything about Ecuador's situation but it sounds completely different. One country tying its monetary policy to one other is a lot different than trying to agree on one policy to fit the needs of 17 countries, the way the Eurozone works.
I meant that as one example of a country which has dollarized; that is, which uses a foreign country's money as its basis of it domestic currency.
Countries which tie their domestic currency directly to the US's include Panama, Ecuador, and El Salvador. Namibia ties its currency to South Africa's (or rather, to the Multilateral Monetary Area).
Other monetary unions exist. The CFA franc has been around for 60+ years and the East Caribbean dollar has been around for 45+ years.
Those seem like counter-arguments to the idea that monetary policy should be "set on a country by country basis."
Since countries do yield domestic currency in favor of a shared currency, it's apparent that there are advantages to doing so. Why do none of those apply to the EU?
I know that I like how I can use the same currency in Germany, France, Spain, and Ireland without having to change money each trip. While I don't like stopping in Denmark, which has their own domestic currency.
The idea of for a country to appear credible by using a golden straightjacket.
It's usually used by countries coming out of hyperinflation phases.
And that policy has badly failed before in Argentina.
Domestic monetary policies also badly fail. Zimbabwe is the most spectacular recent example. Panama has been using the US dollar for over 100 years - is it not am example of how the policy can succeed, or does that work only because it has the Panama Canal?
