No birthday party for the euro

Mario Draghi © Getty images
Draghi: did just enough to save the euro – for now

The single currency project is now 20 years old. But is there anything to celebrate? Emily Hohler reports.

“The euro is a survivor,” says The Economist. The currency, brought into being as an accounting currency on 1 January 1999 (and a tangible one three years later) “defied early critics”, cheated a “near-death experience” – the debt crisis of 2009-2012 – and is now “more popular than ever with the public”. The euro area has grown to 19 countries and ranks as the world’s second-largest economy, based on market exchange rates, second only to the US.

But the euro has “only muddled through”. At its inception, some economists warned that “binding Europe’s disparate economies to a single monetary policy was an act of historic folly”. Political will meant that “just enough” was done to ensure the euro survived the crisis – Mario Draghi, European Central Bank boss, said he would do “whatever it takes” to save it – but “none of the union’s fundamental problems were solved”.

An existential crisis

There weren’t, says Ben Chu in The Independent, and the “existential crisis” suffered by the euro is seen by many as proof that “shackling such diverse countries together” was always going to “create disastrous financial, economic and social tensions”. Optimists, however, believe recent history will “spur” the kind of integration – “such as substantial pan-eurozone, fiscal transfers, a banking union and mutual guarantees of member states’ debt” – necessary to stabilise the currency zone for the long term.

There are no signs of this happening, says Jennifer Rankin in The Guardian. Fear of scaring financial markets – and voters – means there are no initiatives in the pipeline to “resolve once and for all the incompatibility at the heart of the euro project”. Southern powers want more integration to “insulate their vulnerable economies”. Northern ones balk at the risk of future bailouts. Finance meetings result in stalemates.

No wonder, says Robert Samuelson in The Washington Post. Negotiations over rescuing weaker states (Greece, Spain, Portugal and Italy) have left a “bitter aftertaste”. Debtor countries feel mistreated, particularly by Germany; creditors resent bailing out poorer members.

So much for the euro being, as intended, a “unifying force”, says Jeremy Warner in The Daily Telegraph. It might have been good for Germany, “underpinning the competitiveness of an already formidable export machine”, but it has been an “unmitigated disaster” for much of the rest of Europe. Taken as a whole, growth has slowed and unemployment risen markedly since its introduction.

The euro set in train a “destructive dynamic” that created unsustainable fiscal, credit and construction booms and then, by denying the natural adjustment mechanism of currency realignment, forced debtor countries into “punishing internal devaluations”. Voters support it because the middle classes in the poorer countries “like having a German exchange rate to protect the value of their assets, savings and earnings”. They are unlikely to support a move to devalue their wealth by 30% overnight.

As Britain stands on the brink of Brexit, we would do well to remember that 20 years ago most of the British establishment was in favour of joining the euro, envisaging serious economic decline if the UK stood aside, says Roger Bootle in The Daily Telegraph. “The same people are still peddling the same sort of nonsense.”
The EU “makes bad decisions. Its institutions don’t work very well and it pursues a political agenda, either ignorant of the economic costs or oblivious to them. The euro is creaking and European elites hurtling towards more disastrous decisions”. That is why we must grit our teeth and escape “fully and finally” from the EU’s clutches.

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