Natixis chief economist Patrick Artus explains why there’s only one way that a monetary union between countries with different demographics can actually work

Even though Greece seems to have reached a deal to extend its bailout for another four months, and the eurozone is generally healthier than during the 2012 debt crisis, it’s still fair to ask if countries with such different economies can both benefit from using a single currency in the first place. Natixis chief economist Patrick Artus says that they can, but only under certain conditions which the eurozone needs to move toward if it’s going to become stable.

Three scenarios for a monetary union with varying demographics

Artus poses the question in terms of demographics – can older countries which tend to have more savings and slower growth share a currency with younger countries (the euro zone periphery) that have lower savings and much higher growth? Artus lays out three different scenarios, only one of which he says is sustainable.

euro zone age  Monetary Union Artus

euro zone household savings   Monetary Union Artus

First, the savings of the older country can flow to the younger countries to finance unproductive spending eventually resulting in asset bubbles and a balance-of-payments crisis – basically what we watched unfold during the financial crisis and the euro zone debt crisis.

euro zone external debt   Monetary Union Artus Monetary Union

euro zone housing permits   Monetary Union Artus

The second scenario is that the older countries invest their excess savings outside the monetary union, creating current account surplus for the group even. Artus argues that this is also unsustainable because it requires the younger countries to reduce investments and potential growth in order to balance out foreign trade.

The only stable scenario he sees is for the older countries’ excess savings to be invested productively in the younger countries.

“The euro zone has never had this organization,” writes Artus. “It must therefore evolve towards this organization (concretely, Germany must lends its excess savings to other euro-countries).”

Monetary Union – Artus focuses on what Germany needs to be doing, not Greece

While the current focus is on Greece’s brinkmanship in the last few weeks (and the decision to withhold the agreed on list of reforms until Tuesday could be a sign of more to come), Artus isn’t the first person to lay responsibility for making the euro zone work at Germany’s feet. George Soros has repeatedly said that Germany is a threat to the European Union and to the euro zone specifically.

Even though Artus and Soros aren’t advocating for the same policies, both are emphasizing the role that Germany plays in keeping the euro zone stable instead of reserving their criticism for Greece, Cyprus, Italy and other countries that have borrowed heavily and are now struggling to repay.