Sovereignty, the exchange rate, collective deceit, and the Euro crisis Luiz Carlos Bresser‐Pereira Pedro Rossi Paper presented to EAEPE (European Association for Evolutionary Political Economy) Annual Conference, Cyprus, November 6‐8, 2014. Abstract: This paper presents an interpretation of the European crisis based on the balance of payments imbalances within the Eurozone, highlighting the role of the “internal” real exchange rates as a primary cause of the crisis. It explores the structural contradictions that turn the Euro into a “foreign currency” for each individual Eurozone country. These contradictions imply the inability of national central banks to monetize the public and private debts, which makes the Euro crisis a sovereign crisis similar to those typical of emerging countries, but whose solution presents additional obstacles. The European Union is a successful work of political engineering, but the decision to create the Euro was misguided and looms over it. The EU has been fulfilling its role in assuring peace and fostering an atmosphere of political cooperation among the member countries, supported by a deep commercial and financial integration that brought the economic interests of European actors closer together. However, the Euro crisis jeopardizes this construction. Since the Euro acts like a foreign currency for its member nations (a currency that the country cannot either issue, or depreciate), it will remain a permanent source of “internal depreciations”, imposing very high costs to people and economic growth. The single currency, originally conceived to be an additional element consolidating the integration process, proved itself a source of internal asymmetry and imbalances. This has been keeping the Eurozone stagnant since 2009: between then and 2013, while the southern countries and Ireland posted negative growth rates, the supposed beneficiary – Germany – grew a mere 0,7% a year. 1 Things did not