The euro was officially adopted in 1999, although it took a few more years to be phased in for everyday use. Over the years, my feelings about the new currency have see-sawed from one extreme to the other: wasn’t sure it would be adopted in the first place, wasn’t sure it would work if adopted, seemed to work pretty well at first, then led to large trade imbalances within Europe and a financial crisis, now seems to be functioning smoothly again. Is the euro now out of danger, or do certain underlying risks remain substantial?

The most recent issue of the Milken Institute Review (First Quarter 2018) has a couple of useful articles for getting up to speed on where the euro has been and where it might be headed next. Barry Eichengreen contributes “Euro Malaise: From Remission to Cure,” while Jean Tirole discusses the future of Europe after the euro crisis in an excerpt from his recent book, Economics for the Common Good. Eichengreen diagnoses five main issues of the euro in this way:

“First, Europe has a financial-stability problem. As a result of bad management, bad supervision and badly designed regulation, euro-area banks became deeply entangled in the global financial crisis. On the cusp of the meltdown, they were undercapitalized, overleveraged and blithely unware of the risks of investing in U.S. securities backed by subprime mortgages. European regulators were then slow to clean up the post-meltdown mess, which goes a long way toward explaining why Europe’s recovery has been so sluggish.

“Second, the euro area has a debt problem. Government debt as a share of GDP in the area as a whole is not noticeably higher than in the United States, but it is spread unevenly across countries. It is a problem for Belgium, Cyprus, Italy and Portugal with debt-to-GDP ratios well above 100 percent. And it is a monster problem for Greece, with an eye-watering ratio approaching 180 percent. Servicing these heavy debts is a drain on public finances that will become even more burdensome when interest rates rise from current, historically low levels. …

“Third (and relatedly), fiscal policy is a problem. The euro area has an elaborate set of fiscal rules that are honored mainly in the breach. When Greece flaunted those rules at the end of the last decade, it was only following in the footsteps of France and Germany, which had broken the rules some five years earlier. Although the rules in question specify sanctions and fines for violators, those fines have never once been levied in the eurozone’s almost two decades of existence.

“Fourth, the euro area lacks an adequate financial fire brigade, a regional equivalent of the International Monetary Fund. …