And now, the euro
The euro is not in danger of breaking up — yet
When the euro was created, it was clear that its membership did not make up what economists call an optimal currency area
The Economist print edition Jun 9th 2005

Many europhiles once argued that Europe's economic and monetary union could not survive without political union. But they were wrong: plenty of currency unions have worked with no political union (Britain and Ireland had one for over 50 years).

Indeed, the evidence from eastern Germany since 1990 suggests that political union, if it means harmonising welfare benefits and wages despite big productivity gaps, can make monetary union less, not more, workable. That suggests that central European countries should not rush into the euro.

Nor, contrary to some claims, is there a clear parallel between the euro area's struggling, debt-ridden economies, notably Italy, and Argentina before it was forced off its strict convertibility link to the dollar in 2001-02.

The euro has also suffered from misconceived efforts to restrict countries' fiscal freedom. The recent emasculation of the stability and growth pact, which sought to limit euro members' budget deficits to 3% of GDP on pain of swingeing fines, is welcome. Even without the pact, countries such as Italy would have had only limited fiscal freedom, because of the scale of their debts; but Germany and France might have benefited over the past few years from a larger dose of fiscal expansion.

When the euro was created, it was clear that its membership did not make up what economists call an optimal currency area (though nor, in many ways, does the United States). That made it essential for national governments to take measures to make the euro area more optimal—notably by fostering greater labour mobility and making labour and product markets more flexible.

Full text with good links

Open letter to M Jean-Claude Trichet, President, European Central Bank
Of course, the main European economic problems are structural; or - as you once said before taking up your present post - labour costs are too high.
Samuel Brittan Financial Times June 10 2005