Mainstream media can be forgiven for misunderstanding the reasons of the European monetary union’s sluggish economic growth.

But it is quite a different problem when European leaders call for grandiose policy programs while ignoring structural problems that are undermining their epochal project of Europe’s economic and political union.

How, for example, can one talk about exalted designs to make the European Union (E.U.) a significant player on world stage when its physical limits to economic growth (the sum of labor force and productivity growth) only allow for a sustainable and noninflationary GDP advance at an annual rate of less that 1 percent?

Dealing with such important economic, social and political problems requires appropriate monetary and fiscal policies, with structural measures to promote foreign trade and balanced labor and product markets.

The euro area – 21 out of 27 E.U. countries -- only has a unified control of its monetary policy. That required a huge transfer of national sovereignty to the European Central Bank (ECB). All other policy levers are in the member countries’ sovereign domain. Occasional and negotiated administrative interventions of the European Commission (E.U. executive body) cannot make up for the absence of a unified fiscal policy.

The euro is a well-managed currency

The ECB is an independent and treaty-based supranational institution. With the euro area inflation currently running at an annual rate of 2.1 percent, the ECB is fulfilling its principal mandate of price stability.

Remarkably, that objective was met with an improvement of euro area’s economic growth from 0.5 percent in 2023 to an estimated 1.3 percent in 2025. The unemployment rate has also declined to 6.4 percent over the same period.

The euro’s trade weighted value has increased 13.5 percent in the year to mid-February, and the euro’s share of global currency reserves rose 8 percent since early 2024 to stand at 20.3 percent at the end of the third quarter of last year.

The euro area fiscal policies are framed by the monetary union’s treaty requirements, but nobody respects them. They call for a limit of 3 percent of GDP for budget deficits and a 60 percent of GDP limit for public debt.

The euro area budget deficit for last year is projected at 3.2 percent of GDP, with a public debt rising to 95 percent of GDP. Debts and deficits in euro area’s four largest members (Germany, France, Italy and Spain) range from a 2.5 percent of GDP budget deficit in Germany to a 6 percent of GDP deficit in France. The lowest public debt of 64 percent of GDP is in Germany and the highest of 150 percent of GDP is in Italy.

All that shows that the European project of economic and political union is a difficult work-in-progress since March 25, 1957, when Belgium, France, Italy, Luxembourg, Netherlands and West Germany signed a Treaty of Rome to establish the European Economic Community.

The French German discord

The monetary union and the euro, launched in 1999, completed the original customs union, but a fully functioning single market, introduced in 1993, is still a distant objective.

In 2017, the newly elected French President Emmanuel Macron made bold proposals to speed up and strengthen the European project by creating a fiscal union with a euro area budget and fiscal transfers.

Predictably, Macron’s reform proposals, apparently coordinated with the IMF and the European Commission, were a DOA -- dead on arrival -- in Berlin. Angela Merkel, the German chancellor at that time, was ridiculing her “young colleague, bubbling with ideas …”

And that’s where things still are. The euro area needs to become a confederal state that can gradually integrate the six countries which are still not members of the monetary union.

Macron again pleaded this week for a huge borrowing program by floating jointly guaranteed Eurobonds to revive economic growth and finance investments to keep pace with American and Asian competitors. Germany again refused to follow French proposals, saying that the E.U. must work on improving productivity instead.

That obviously makes no sense; it is just a cobbled up German pretext to oppose spendthrift penchants of a country – France -- running a 6 percent of GDP budget deficit and a public debt of 120 percent of GDP.

Deep disagreements between France and Germany will be difficult to overcome. One should, therefore, not take seriously the latest E.U. discussions about completing the single market and creating a unified financial system.

Apart from that, France is already in a campaign for presidential elections in April 2027, with Eurosceptics leading in opinion polls. And the German governing party, headed by an unpopular chancellor, is losing ground to right wing Alternative for Germany politicians.