A Right and Proper Death of the Euro
When the proposal was initially made for a common European currency, it seemed to this writer to be a good idea, with the flaw that it wouldn’t work. Although inexpert in economics (being a product of the age of arithmetic), it struck me as an effect of a false analogy with the United States that was common in Europe at that time.
If New York, Texas and Iowa could have a single dollar currency, why couldn’t France, Germany and Italy? Europe already had — or was completing — the single European market, free of tariff barriers. Why not a single currency for the single market? A great many enthusiastic supporters of European unification seemed to think that all that was needed was to give it a name and design, and then print it up.
Thanks to the imaginative former French President, Valery Giscard d’Estaing, a fine history-redolent name already had been given to the mechanism that would lead to the single currency, the “Ecu,” which meant “European currency union,” and happily was also a French proper name, given during the 17th and 18th centuries to a series of small gold or silver French coins.
When the time to create the currency itself finally arrived, the chauvinists of other European Union countries balked at the French name, and the currency was drearily named the euro (not even capitalized) and bore exceedingly boring drawings of bridges and viaducts. (Every euro-zone country had a bridge or viaduct, so each could say that it was its own pictured.)
The complaint that I (among others) made from the beginning was that European countries were not American states. They were sovereign political entities. Each had its own characteristic economy, resources, products, markets — and its own national deficits and surpluses. Vitally important was the fact that each had its own currency, and these currencies were not interchangeable, and moreover, were not constant in value. You had to take them to a bank or exchange counter and buy their current equivalence in another currency.
But EU enthusiasts said Californians did not have to change their dollars when they drove to Nevada. It would be the same in Europe. At this point, the American had to explain about the American Civil War, in which there was the largest number of war-related casualties of all American wars. The purpose of the war was to terminate the sovereignty claims made until then by the slave-holding Southern states. The result was a single, sovereign nation, with a single currency, and eventually a single budget that prevailed nationally.
The only reply to this that the American’s European interlocutors could make was that Europe had already experienced more than its share of wars. The EU was intended to put an end to that unfortunate European practice.
The practice in recent times was that chiefly of the Germans. The France of Bourbons, Napoleon and the Third Republic ceded leadership in precipitating wars to Hohenzollern and then Nazi Germany.
During those same recent times, the United States interested itself in Europe and its wars, and as a result constituted for itself a new role as a European power — as THE European power, as the late American diplomat Richard Holbrooke made plain to the West Europeans when he was U.S. Ambassador to Germany in the 1990s, reinforcing the dominant role Americans had played ever since the European unification movement began in 1951. It is a role now ending.
The Wall Street crisis of 2008 produced the European credit crisis that quickly followed. This crisis now may be about to destroy the European currency union as it presently exists. In the minds of Europeans, it has already divided the euro zone’s north European members from the southern members, with France unsuccessfully straddling the two parts.
It has produced deep unemployment and repression in Greece, Portugal, Ireland, Spain, Italy and — impending — in Cyprus and Slovenia. Britain, despite remaining outside the euro zone, depends on the zone for its export trade and is sliding into the same crisis, with a lot of help from Prime Minister Cameron’s austerity policies.
Germany, with the northern members of the zone that are Germany’s traditional dependencies, has imposed its own conservative monetarist policy on the entire euro bloc, at bitter cost to the southerners, now victims of extreme indebtedness.
The German public, only now being touched by the crisis, and having controlled the European Central Bank and EU governments’ policy of pitiless austerity to the vast misery and vocal ingratitude of the EU’s southern members, finds now that this policy itself is failing to work — and that Germany is blamed for that, too. The result is a surge of German popular hostility towards its ungrateful fellow Europeans, whose as yet unspoken reproach is that Germany, having destroyed Europe’s political and economic equilibrium in two hellishly destructive world wars, is now at it again.
A new “Alternative for Germany” political movement has erupted as a backlash against the euro, and against Germany’s fellow members of the EU. Academic observers of the situation compare the political force behind it with that of the American Tea Party eruption. Chancellor Angela Merkel faces federal elections in September. Her Free Democrat coalition partners are in difficulty. What this will mean for German domestic politics is, of course, presently unforeseeable. But combined with a certain elite disillusionment with the euro zone system and its economic consequences, German abandonment of the euro and return to the Deutschmark is now a serious possibility. The euro experiment is failing. The EU can be saved in many other respects, but the single currency was folly
This is exactly what the financier George Soros has recently recommended to the Germans: to serve their own interests by abandonment of the euro, while freeing the other members of the bloc to pool their debt by issuing eurobonds and escape the constraints imposed by Germany.
What will happen? The states suffering unemployment and credit crises will do what they have always done in the past: devalue their currencies and stimulate their economies. Keynesianism will find its vindication.
Visit William Pfaff’s website for more on his latest book, “The Irony of Manifest Destiny: The Tragedy of America’s Foreign Policy” (Walker & Co., $25), at www.williampfaff.com.
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