The euro area's future is troubled because of the heterogeneity of its members. Beneath the surface of satisfactory performance for the euro area as a whole, its first decade was characterised by divergence in key macroeconomic indicators among member countries (e.g. inflation rates, current account positions and real effective exchange rates). This divergence points to the source of the problem. It does not lie with the credibility of the European Central Bank (ECB). Rather, it lies with the difficulties for a number of countries in operating with a single currency. These arise from persistent differences in how labour markets work in member countries and in how different governments have approached the problem of stabilising the national economy within a common currency area (CCA).

The euro area's first decade shows that the choice of monetary regime can affect economic outcomes on the real side of the economy. Expectations that private and public sector agents would change their behaviour once a single currency was adopted proved overoptimistic. Contrary to the expectations of many observers, in the private sector, wage- and price-setters did not modify their behaviour in ways consistent with sustainable growth within a CCA. In the public sector, the need to stabilise national bouts of excess demand was neglected. The markets failed to signal the build-up of these tensions: until the sovereign debt crisis emerged in early 2010, and spreads on the bonds issued by euro area governments remained until then very narrow.