The wonder that was euro once upon a time

And now it is absolutely certain. Euro and eurozone were invented when a group of con men with no scruple fooled the world, Europe in particular. Never before in history the continent of Europe has been so threatened. If someone in future ever undertakes writing a book on how euro was invented and survived over a decade the writer can borrow from A. L. Basham and name the prospective book as the wonder that was euro.

In true sense, euro has been a wonder which has defied logic and economic principals. And not only did it survive; it has survived over a decade since it was officially introduced on January 1, 1999. Euro and the monetary union should not have survived thus far simply because it was everything and not anything close to what Jean-Claude Trichet, former president of the European Central Bank (ECB) claimed. Since the moment of its birth euro has been wobbly, an uncertain monetary union and was never can-do currency. And eurozone, let us be honest in admitting, was a monetary union which smacked of "giant act of hubris by a distant political elite who in vain credited with giving Europe a more influential voice in the world".

As a matter of fact the common currency and the fiscal union it forged were found terribly lacking in genuine co-ordination of macroeconomic policies. What the common currency actually gave birth was an authoritarian structure that subjected what John Grahl, a professor of European integration at Middlesex University and a member of the EuroMemo Group, says, the weaker states to permanent and extremely intrusive surveillance, formally by the commission and the European Central Bank (ECB), in reality by Germany and the stronger northern European states.

The "surveillance union", therefore, sooner than later became economically as dysfunctional and it was politically undemocratic and unviable. Little wonder, therefore, that the present crisis in the 17-nation eurozone is a daily reminder of the dreary state of economy it has been the harbinger of. Most of the nations of monetary union are heading back to recession at meteoric pace leaving the policy makers absolutely at their wits' end about how to deal with the spiralling debt crisis.

Euro's journey through time thus far has been convulsive. In its failures to "protect the euro area economy from the many global shocks and considerable turbulence of the last few years" euro has painted its own future as much as that of the 17 nations in extremely uncertain hues.

Few believe, even outside Europe today, that the currency has achieved any of the tall goals it set for itself and that the forging of a common European identity was necessary. Euro mustn't survive even a day longer and efforts, therefore, should be made to revert to the good old days of pounds and shillings, deutschmarks, franks etc. Because, even if euro survives its current crisis and in the form the EU leaders are planning the future of eurozone will be terrifying and the cure will certainly turn out to be a greater disaster. The failed project, common European currency, has now started to create extraordinary political crisis. A great divide is now again taking place in the continent splitting Europe right across its midriff. The continent is heading towards an unprecedented disintegration, nay a disaster — both political and economic.

"Savvy operators in the south have not hesitated to exploit this volatile brew of economic hardship and hypocrisy, mixed with a generous dash of historical resonance. Parties at the extremes of the political spectrum have been gaining adherents, with nationalism a strong current on both sides. And so, in most of the southern countries, the balances of political power have started to fragment." Political equilibrium in the whole of South Europe is fast tilting. 

Political fallout of euro crisis has started to spill out beyond the south of Europe. In Britain the Conservative Party has been upping its ante against the common currency and has also been raising its anti-euro rhetoric in response to an increasing domestic opposition to UK's EU membership. In Germany too demands to scrap euro are getting increasingly audible. It is almost certain now that if Angela Merkel and her party suffer defeat in the next elections Germany will revert to deutschmarks.

Daniel Altman, a teacher of economics at New York University's Stern School of Business, has a point with which we cannot but agree. He feels that Europe's current fiscal crises would have been a lot shorter if the countries involved — Greece, Portugal, Spain, now Cyprus, soon Slovenia, and perhaps Italy for a second time — had possessed their own currencies.

But all of them use the euro, so their monetary policy is set in Frankfurt at the ECB. Instead of devaluing their currencies in order to spur exports and ease the repayment of debts, all of these countries have had to undergo some combination of fiscal austerity, deflation, and, most notably in Cyprus's case, loss of assets.

This is making the people of south Europe furious. They nurse an "irksome feeling that bureaucrats and politicians in Frankfurt, Brussels, and other northern capitals are forcing these troubles upon them. Not long ago, some of the same bureaucrats and politicians were the ones luring the southern countries into the euro, often paying scant attention to their questionable fiscal situations."

Economists and academicians including Martin Feldstein predicted that the euro would "change the political character of Europe in ways that could lead to conflicts. War within Europe itself would be abhorrent but not impossible. The conflicts over economic policies and interference with national sovereignty could reinforce long-standing animosities based on history, nationality, and religion."

A war in Europe is not imminent but parting certainly is. Therefore, the need definitely is to sacrifice euro if leaders are serious about salvaging European integration.

The author is the Opinion Editor of Times of Oman


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Reader Comments

Because competitive devaluation was not a problem in the interwar period at all. I mean nothing went wrong there. There was no hyperinflation, economic nationalism and collapse of international order leading to war and genocide. Oh no. Im so glad that the author of this article has put a lot of thought into the consequences of the action he prescribes.

I agree that a parting is essential. However, I think the solution is to sacrifice the Eurozone rather than the Euro.

The peripheral countries are swamped with Euro debt, to which are being added further loans to protect the status quo. For Greece, Cyprus etc etc to abandon the Euro and return to their previous currencies would be a disaster which has been brewing since 1999.

The only hope for recovery in the short to medium term is for Finland, Germany, Luxembourg and the Netherlands to leave the Euro and to create a new Mark area. The Mark would appreciate, the Euro depreciate, and all those Euro debts would become more manageable overnight.

That Mark area could be expanded as and when other countries genuinely met the necessary economic conditions and when they thought it would be in their interests so to do.