Often written off, its imminent demise repeatedly proclaimed, the euro quietly celebrated its 20th birthday on January 1.
It’s an event that went virtually unnoticed in Brexit-obsessed Britain where its role (and future) is normally derided.
As our currency, the euro has become an integral part of everyday life and it makes it easier for us to trade, travel, study, live and work abroad, is how the European Central Bank soft-pedalled it.
If and when Brexit is finally out of the way, at least for the EU, the 27 member states, including 19 in the eurozone, can get on with discussing and deciding what changes/reforms are required if the single currency is to celebrate its 30th, 40th…birthdays. Change is indeed in the air.
On January 22, in Aachen/Aix-la-Chapelle, Emmanuel Macron and Angela Merkel will sign a new Franco-German accord that draws on the original Elysée Treaty adopted on the same day in 1963. It aims to put flesh on the June 2018 Meseberg Declarationbetween the French president and German chancellor that committed the pair ““to strengthen and deepen the Euro area further and make it a genuine economic union.”
Well, as ever, don’t hold your breath. Nevertheless, with the euro area as a whole in relatively robust economic health but marred by glaring gaps in output, growth, employment, debt/deficit, balance of payments et al, there is an extant and growing agenda for reform. Its very existence gives the lie to Conservative and Labour claims that there is no reform process under way.
The problems that have surfaced over the past 20 years, including initial design faults, have been rehearsed ad nauseam. Iain Begg of the LSE puts it well here: “…the euro was a monetary union, a fiscal union to only a very limited extent and not at all a political union, making it a currency without a country.”
Similarly, the former Greek socialist premier (1996-2004), Costas Simitis, sums up failings in outcomes here:
…EMU has been unable to effectively deal with the problem of growth disparity in Europe. The common currency does not suffice on its own to ensure that all member states have equal opportunity to enjoy the opportunities and possibilities it offers. The current conditions favour the economic dominance of the most powerful, with the weaker members slipping ever further behind, especially if under an incompetent government.
Sceptics go so far as to suggest that, given those disparities between a prosperous, puritanical North and poorer, ‘feckless’ South, the eurozone should split in two – an idea some in the right-wing populist Italian coalition government have flirted with. Or, at least, ordoliberal Germany with its absurd obsession with balanced budgets, “internal devaluation” (wage cuts) and huge current account surpluses should quit (see hereand here).
These are thoughts I heardon the market square of Maastricht seven years ago and nothing has happened since despite successive crises, including in Greece (until last year when it finally exited the bail-out programme). But then, as Simitis puts it, the euro has been the most stable currency his country has ever had – a view now shared by one-time arch-critic and current premier Alexis Tsipras. It’s one that is widespread even in the newly sceptic countries such as Italy.
Clearly, europhiles such as Macron would welcome big steps towards not just a complete banking union and proper fiscal union but also political union while Merkel reflects majority German sentiment in seeing this, publicly at least, as a smokescreen for a “transfer union” – i.e. ignoring moral hazard and handing German savings to untrustworthy/lazy southerners. At most, the French president can expect a token euro area budget – far from the full-scale spending programme funded by pan-euro area taxes he espoused in his Sorbonne speechof September 2017.
There are some signs now that the social democrat-led German finance ministry – under Olaf Scholz and, especially, his chief economic adviser, Jakob von Weizsäcker, ex-MEP and one-time protagonist of common eurobonds to finance debt – might countenance measures such as a eurozone unemployment re-insurance scheme or a euro area budget for investing in common public goods (infrastructure).
Certainly, the new European Commission 2019-2024 might well take up the idea endorsed by Jean-Claude Juncker et al of a European/eurozone Treasury and Monetary Fund (EMF) that would gradually take over the (expanded) remit of the European Stability Mechanism and might be accountable to a special eurozone sub-section of the European Parliament. These and others are all ideas discussed in a forthcoming book from European economists, Still time to save the euro.
For sceptical commentators such as US professor Barry Eichengreen (see here) the key issue is that further moves to economic integration/union require more powers for MEPs and reduced national sovereignty that “the vast majority of Europeans” reject. “They have little appetite for pooling national sovereignty at the European level. And 20 years of the euro have done little to change this,” he says.
Then again, without significant moves to extend solidarity and share sovereignty further, the only winners – especially in any fresh financial crisis/recession – would be the far-right populists/extremists (yellow-vested or not). The euro area cannot simply carry on for another decade unreformed – or unscathed.
So, as we British consider a life apart, our fellow Europeans will be engaged in some fundamental soul-searching about the degree to which they are prepared not to take back control but to pool it so as to make good the pledge to ensure that Europe is a haven of shared prosperity. Does Scotland want to take part in that essential debate? Up to us…
First published by SCER
Martin Wolf FT January 15 2019 Eurozone is doomed to succeed (£)
Larry ‘Lexit’ Elliott Guardian January 17 2019 Only a rupture with the EU…