The free rider problem that arises in a currency union is that a member government that borrows heavily may not be obliged to pay as high a rate of interest on its borrowing as it would if it were not a member of the currency union, while the other governments of the currency union find the financial markets require them to pay higher interest on their borrowing because of the high borrowing of one of their neighbours.

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This is a correct statement about the free rider problem in a currency union. As per the statement, a member government that borrows heavily may not have to pay a high rate of interest as compared to non-members. This can create a free rider problem where one member benefits at the expense of others, leading to unequal burdens and strains in a currency union.

The Free Rider Problem That Arises in a Currency Union