I did a Google search on EclectEcon+2005+Euro and was directed to this posting, written over a decade ago. The timing was all wrong in my piece (what's new?) but the nuggets of truth and prescience were there, too:
The continued success of the Euro as a world currency depends crucially on the fiscal discipline of each of the constituent gubmnts. If only a couple of the member country gubmnts run prolonged, serious fiscal deficits, those countries will put inordinate pressure on the Euro and/or threaten to withdraw from the common currency.
The countries will naturally claim that they want the flexibility to address short-run macro weaknesses in their economies. And that is exactly what is happening now..... If France, Germany, and Italy are successful in getting the Pact relaxed, the growing individual country debts will put increasing pressure on the Euro. It might not happen for quite a few years, but the seeds are being sown for the coalition to break down. The Euro is, after all, the result a coalition with no single entity having the power to enforce it. Such coalitions can be unstable over time. As BrianF, who sent this to me, adds,
European finance ministers are meeting in Brussels on Sunday to discuss changes to the Growth and Stability Pact governing the euro.
The agreement limits the size of a nation's budget deficit and has been criticised for not letting governments boost economic growth by spending more.
If this trend continues, the Euro will not be a good candidate to replace the U.S. dollar as a world currency reserve; foreign central banks, especially in Asia, will continue to hold U.S. dollars, but only because there is no good alternative, thus staving off the decline in the U.S. dollar that we might otherwise expect.
I think this is what's known in macroeconomic theory as a time-inconsistency, precommitment problem. Which in general parlance means that a committment from a politician is not worth the paper it's written on.
It is interesting that a decade ago, economists were more concerned about the lack of fiscal discipline in France and especially in Italy. Greece was under the radar for most economists, apparently. And yet the fiscal "instability" [aka bankruptcy] in Greece was already beginning to develop.
As I wrote back then, profligate nations had little incentive to rein in their borrowing and spending.