The Euro at 20: An Enduring Success but a Fundamental Failure

Lambert here: My very limited understanding of EU architecture is that the recurring crises to which it is subject are, by design, intended to bring about the “ever-closer union.” But perhaps that design has reached its sell-by date.

By Barry Eichengreen, Professor of Economics and Political Science, University of California, Berkeley. Originally published at The Conversation.

New Year’s Day 1999 saw the largest monetary changeover in history. On that date, just 20 years ago, 12 members of the European Union formally adopted a brand-spanking-new currency, the euro.

Today seven additional EU member states use it, along with Montenegro, Kosovo, Andorra, Monaco, San Marino and Vatican City. If survival is the ultimate gauge of success, then this grand monetary experiment can be said to have succeeded.

But as investment advisers say, past performance is no guarantee of future results.

History Lesson

To understand why, it helps to recall the motivations of the euro’s founders.

The first full-throated call for a single European currency was in the Werner Report issued in 1970. Its authors feared that the Bretton Woods system of currency pegs to the dollar was terminally ill and that its collapse would wreak havoc with exchange rates within Europe and therefore with the continent’s economy. The proposal was renewed in 1989 in the Delors Report, which presented a single currency as the capstone of Europe’s Single Market and its four freedoms: free movement of goods, capital, services and labor.

But these economic arguments did not suffice to tip the political balance toward the euro. In addition there was the belief of leaders like French President Francois Mitterrand and German Chancellor Helmut Kohl that a single European currency would apply irresistible pressure for political integration. It would lead eventually to their ultimate goal: a European political federation not unlike the United States.

Their logic ran as follows. To function smoothly, monetary union requires banking union – in other words, a single supervisor for all the banks and a union-wide deposit insurance scheme. Otherwise banks overseen only by their national supervisors would be allowed to undertake cross-border lending operations irrespective of the impact on neighboring countries. And in the absence of a union-wide deposit insurance scheme, a run on the banks in one country could infect the banking systems of its neighbors.

Similarly, to operate smoothly, a monetary union requires an integrated fiscal system, like those of political federations such as Australia and the United States. States that give up their monetary policy to a higher authority can no longer adjust it to changing national conditions. They can no longer lower interest rates to spur investment when the national economy is slowing more than those of its partners.

But if the partners operate an integrated fiscal system, the more prosperous members can shift resources to the depressed region, substituting for the no-longer-possible interest-rate cuts.

Here’s the rub: Banking union and fiscal union will only be regarded as legitimate if those responsible for their operation can be held accountable for their decisions by citizens. That means more power for the European Parliament – and less for national legislatures. It means that monetary integration creates a logic and therefore irresistible pressure for political integration.

Or so the euro’s architects believed.

The Fly in the Ointment

The problem is that the vast majority of Europeans, as distinct from the elites, don’t like the idea of giving up their national sovereignty. They identify as German or Italian first and as European only second, if at all.

They have little appetite for pooling national sovereignty at the European level. And 20 years of the euro have done little to change this.

Hence there was no banking union in the first decade of the euro. In its absence, large amounts of capital cascaded across Europe’s internal borders. Banks in Germany and France financed all manner of speculative investments in Irish and Spanish property markets and Greece’s public debt.

When, in 2008 and 2009, problems developed in the economies on the receiving end of these flows, the banks curtailed their lending. The Irish, Spanish and Greek governments, facing new constraints on their borrowing, were forced to sharply compress their spending, since there was no fiscal union to transfer resources to them from the more prosperous members.

But rather than advocating the creation such a system, nationalistic commentators in Germany and the members of the so-called New Hanseatic League – made up of eight northern European Union countries – warned of the dreaded specter of “transfer union.” In other words, they warned that cross-country transfers would all go one way, and that they would be on the paying, not the receiving, end.

In the absence of the political solidarity required for such transfers, the crisis countries were forced to double down on spending cuts. For them, the eurozone was transformed into an engine of deflation and depression.

The conclusion follows that absent a willingness to contemplate political union, banking union and fiscal union are not possible. And without them, monetary union by itself will not stand.

Still It Breathes

Yet the euro is still with us.

It has survived for fully 20 years. It survived the mother of all stress tests, the global financial crisis.

As the Greek, Irish and Spanish crises all showed, and as the Italian crisis is showing again, exiting the euro is even harder than exiting the European Union.

As I explained more than a decade ago, abandoning the currency would ignite a full-blown financial crisis, as depositors frantically liquidated their bank balances and investors dumped their government bonds to avoid seeing their savings devalued. Each time a European leader, such as Greece’s newly elected Prime Minister Alexis Tsipras in 2015, has contemplated abandoning the euro, this specter has caused a reversal.

But neither is the alternative of far-reaching institutional reform in the cards. At their summit last month, European leaders agreed only to modest future steps to build out the monetary union.

They agreed to create a eurozone deposit insurance scheme, but only after problems of nonperforming loans in Italy and other countries were resolved, which is to say no time soon. They agreed to create a euro-area fiscal capacity, but only after high debts were brought down, which means not in this lifetime. They agreed to grant the European Stability Mechanism, the rescue fund established in 2012, additional resources and powers, but, again, only after existing bad-loan problems are addressed, which means at best in the very distant future.

This agreement falls far short of banking union, fiscal union and political union. It is an agreement to “work toward” rather than to “establish.” It will not change the operation of the monetary union.

Stumbling Forward

So the euro will stumble forward. No one will be happy with its operation. Equally, no one will leave. Progress will be minimal, since there is no appetite for the political union needed to support fundamental reforms.

As a result, the euro remains vulnerable to another crisis. The next crisis could heighten the perceived urgency of fundamental reforms and lead Europe’s citizens to accept the modicum of political integration needed to implement them. So reformed and restructured, the euro would operate better.

Or the next crisis could empower anti-elite, nationalist, anti-EU – that is to say populist – politicians, making it impossible to implement even the modest reforms agreed in 2018.

In which case the euro will function even less smoothly.

Only one thing is certain. History doesn’t run in reverse. For better or worse – and both arguments can be made – the euro is here to stay.

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About Lambert Strether

Readers, I have had a correspondent characterize my views as realistic cynical. Let me briefly explain them. I believe in universal programs that provide concrete material benefits, especially to the working class. Medicare for All is the prime example, but tuition-free college and a Post Office Bank also fall under this heading. So do a Jobs Guarantee and a Debt Jubilee. Clearly, neither liberal Democrats nor conservative Republicans can deliver on such programs, because the two are different flavors of neoliberalism (“Because markets”). I don’t much care about the “ism” that delivers the benefits, although whichever one does have to put common humanity first, as opposed to markets. Could be a second FDR saving capitalism, democratic socialism leashing and collaring it, or communism razing it. I don’t much care, as long as the benefits are delivered. To me, the key issue — and this is why Medicare for All is always first with me — is the tens of thousands of excess “deaths from despair,” as described by the Case-Deaton study, and other recent studies. That enormous body count makes Medicare for All, at the very least, a moral and strategic imperative. And that level of suffering and organic damage makes the concerns of identity politics — even the worthy fight to help the refugees Bush, Obama, and Clinton’s wars created — bright shiny objects by comparison. Hence my frustration with the news flow — currently in my view the swirling intersection of two, separate Shock Doctrine campaigns, one by the Administration, and the other by out-of-power liberals and their allies in the State and in the press — a news flow that constantly forces me to focus on matters that I regard as of secondary importance to the excess deaths. What kind of political economy is it that halts or even reverses the increases in life expectancy that civilized societies have achieved? I am also very hopeful that the continuing destruction of both party establishments will open the space for voices supporting programs similar to those I have listed; let’s call such voices “the left.” Volatility creates opportunity, especially if the Democrat establishment, which puts markets first and opposes all such programs, isn’t allowed to get back into the saddle. Eyes on the prize! I love the tactical level, and secretly love even the horse race, since I’ve been blogging about it daily for fourteen years, but everything I write has this perspective at the back of it.


  1. Clive

    Bizarrely, the euro is Brexit’s other Ugly Sister. There’s a clear family resemblance. Neither has any obvious way of going back to the way things were. Neither has any obvious way forward that isn’t a very rocky road indeed. Yet neither can either remain the same. Both have their discontents who can’t quite wield a death blow. But their proponents can’t silence the critics.

    As for the euro being somehow reformed, whatever that might specifically involve, there is, again, the same arguments in play as applies to Brexit Remainer’s saying that it would be a viable option that Brexit can be vitiated by staying in the EU and “reforming” it “from within”. Hmm. I’m not fainting here on my couch with anticipation on that one working out.

    We’re just going to have to make mental notes to check back in ten year’s time how it all worked out.

    1. PlutoniumKun

      The Euro continues to surprise me. I read plenty of very informed commentators in the post-crisis period who predicted that it would last 5 years at the most before a Spanish or Italian crisis caused it to disintegrate (I was, and remain, quite neutral on the topic, I just don’t know enough about the mechanics to make any kind of prediction). But it hasn’t happened yet, and doesn’t seem likely to do so in the short to medium term.

      There is a lot of institutional momentum behind doing whatever is necessary to keep the euro – even in Germany, which has always been the most reluctant of the members. The question I think is whether a crisis comes so fast and hard that the institutions simply can’t keep up with it. But for now, I think the euro will muddle through indefinitely for some time to come.

        1. PlutoniumKun

          They’ve benefited more than anyone, but the German public have historically been the most sceptical about the euro.

    2. Ignacio

      I somehow didagree, or just did not understand your, for me, too sophisticated use of english. The euro in its current architecture owes much to the EU being composed of members which aren’t euro members such as the UK or Denmark. In this sense, Brexit migth facilitate fiscal integration of eurozone countries. Brexit migth be the ugly or not so ugly sister of an eurozone whose rulemaking has increasingly influenced fiscal policies of UE members within or outside the euro. This is in my opinion the third leg that Mr. Barry –for me one of the best american voices on euro– didn’t mention. It is not only the euro but also the regulatory framework what pushes for stronger integration and my sense is that the UK rejected first the currency and now the regulation through Brexit. It should be noticed that regatory activities are currently more abundant and important at euro level than at state level (IMHO). Thus, the fiscal union is an inevitable consequence of current trends although many do not realise it.

      1. Financial Traitors

        There is a real psysical problem with quitting euro as part of joining Euro you had to destroy your print presses. You have to buy equipment. Have no idea who runs this market but a bunch of phone calls will stop any sales to idependemce seeking nations

        “In 2000, the year before Greece joined the eurozone, “one of the things we had to do was get rid of all our printing presses””

        Moreover countries such as Sweden has stopped printing their own money and handed over this US firms and other private contractors competely doing away with sovereignity. As SWIFT and Iran sanctions debacle show the financial industry is not dependable for any policy advantageous to Europea citizens and nations

        1. Grebo

          Physically printing money is not really necessary in this day and age. I am not in favour of getting rid of cash but a new currency doesn’t need it.
          And, as you say, there are firms outside the EU who print cash for many governments, including my own. This does not affect sovereignty, even if a government could not find a printer, cash is only a small part of the money supply in any country.

  2. MisterMr

    In my view, this article not only is wrong, but it actually depicts a view that is the opposite from reality.

    Let’s start from this sentence:

    “The problem is that the vast majority of Europeans, as distinct from the elites, don’t like the idea of giving up their national sovereignty. They identify as German or Italian first and as European only second, if at all. ”

    The sentence links to a list of “eurobarometer” publications that, in general, don’t support this assertion because, even if today happines with the EU is low it is still just slightly below 50%; when you consider that in these polls there is generally also a “don’t know” options these numbers can hardly be described as anti EU.

    Furthermore, Eichengreen states that the “elites” want unified EU, while the people don’t (but still for some reason elect people like Kohl and Mitterandt who want an unified EU).

    But if we look at what actually happened, we see that people in the EU actually want more (at least cultural) integration, but the euro project forced a lot of austerity in various parts of the EU so people think “yes, in theory I like the EU, but if I have to pay for it with a lower wage or permanent crisis, then the price is too high”.
    The austerity policies are not an automatci consequence of the euro (since euroes, like dollars, can be printed) but are the consequence of this:

    1) a monetarists conception when the ECB was founded, so that the ECB has to counter inflation but not unemployment;
    2) policies tilted toward austerity in some EU countries, most importantly Germany, that end up forcing austerity everywhere else in the euro area, caused by
    3) a bias toward an export based economic model, due to the fact that european countries are medium sized economies, and
    4) a bias toward pro-creditor, anti debtor policies.

    point (1) and (4) are clearly pro-elite policies, and IMO also point 3 is.

    So what is happening is the opposite of what Eichengreen claims: there is a general goodwill in the population toward the EU, but pro-elite policies, channelled through the euro, are breaking down this goodwill.

    So on the whole I think that Eichengreen’s opinion is at 180° from reality.

    1. PlutoniumKun

      I’d agree to a large extent with this. Many outside commentators look at various eurosceptic parties and votes and interpret this as a general anti-EU mood. It isn’t – sometimes general discontent takes the form of anti-EU feeling, but the reality is that the EU is actually very popular across the EU, especially in the smaller countries. Likewise, the euro is very popular. In most countries, people associate bad governance and austerity with their own governments, not the EU (whether this is right or not, is a moot point). Even in countries that have suffered from the euro, like Spain and Italy, it is popular – the reason is straightforward – people remember what their own currencies were like, and prefer a stronger one in their pockets.

      And the notion that it is elites that want a closer EU while the public doesn’t – well, that depends on the country and what you mean by ‘elites’. In reality, most national political elites want to keep all the power they have to themselves, thank you very much. Specific elites – especially in business – generally want closer alignment, but even then, they will find time to complain bitterly about EU bureaucrats and all the rules. Regular people are suspicious of power wielding organisations like the EU, but its not always the case that they are more suspicious of Brussels than their own national or regional government. It’s complicated.

    2. digi_owl

      I think the “wants” are split across age and education.

      Those of lower education and higher age, who has settled with mortgage and family, are more distrustful of the EU project than the younger, better educated, and unsettled. This because the latter group can make full use of the EU “freedoms” to pick their place, and time, of work based on seasons and tastes.

    3. Olga

      I found the article informative and disagree that it is “wrong.” To me – at least – it seems quite correct. I have yet to meet a person from Europe, who wants to forget that she is a German, French, Italian, Spanish – whatever- and become “a European.” Ain’t happenin’… And it’s not because they don’t see themselves as European – it’s more a matter of what the EU had become in the last 20 yrs. Let’s not forget that some of those EU treaties (e.g., Lisbon) were not welcomed by certain nations (lucky enough to have had a vote). Since then, the undemocratic nature of the EU became even more self-evident. So when the author says that a closer unification is not likely, he seems to me to be on a firm ground. The author’s analysis of the euro as “so close, yet so far away” is spot on.

    4. Grebo

      It seems to me, as an expat Brit living outside the EU, that non-Europeans like Eichengreen and Bill Mitchell overstate the nationalistic anti-EUism in Europe. Young people in particular are enthusiastic Europeans in addition to their nationality.
      It is the institutional setup of the EU that people don’t like, not the idea.

      So, while Eichengreen is not 180 degrees wrong, he is led astray by this error and perhaps also his lack of criticism of the existing institutions. The problem is not just the missing bits.

  3. The Rev Kev

    Without realizing it, I would say that the author just announced the failure of the Euro when he said that it was adopted by “Montenegro, Kosovo, Andorra, Monaco, San Marino and Vatican City”. The first two are very small countries who depend on the EU’s good graces while the others are what are known as “microstates”. Hardly a rousing vote of confidence. Over a third of member states of the EU have not adopted the Euro and after witnessing what has happened to countries that have, have pushed adopting it to the first of Never. The trouble is when adopting the Euro is that you never know how the rules will be changed down the track which is the same problem as being in the EU itself. With this in mind, I would note that currently the European National Anthem is based on “Ode to Joy” from the final movement of Beethoven’s 9th Symphony. Because of the lyrics, I would suggest an alternate suggestion-

    1. barefoot charley

      Rev, did you know your youtube is blocked in the US ‘on copyright grounds?’ Maybe we can’t defend ourselves against Russian trolls, but against evil corporate copyright pirates–easy peasy!

      1. Anon

        The link goes the the lyrics for the Eagles “Hotel California”.

        The relevant line would be: Hotel California …you can check-out, but you can never leave.

        1. The Rev Kev

          Thanks guys. Can’t see a damn thing at my end of course but will note one thing. One of the bugbears of neoliberals is restriction of trade. You get penalties in trade treaties if you do it in fact. So how come major companies get to divide up the world so that a YouTube video I see cannot be seen in the US? How come the DVDs I own are for Region Four and cannot be played in DVD players in the US are for Region One only? Isn’t that “restriction of trade”?

        2. Anon

          Here’s the last stanza to the “Hotel California” lyrics:

          Last thing I remember
          I was running for the door
          I had to find the passage back to the place I was before
          “Relax,” said the night man
          “We are programmed to receive
          You can check-out any time you like
          But you can never leave!”

  4. David

    Living in a country that uses the Euro, I have to say that it evokes pretty much no feelings at all on most peoples’ part, and certainly not the sentiment that the Franc used to. The general attitude seems to be that, well, we’ve got used to it now, so I suppose we’ll keep using it. And indeed (and as designed) it’s something which is almost impossible to get out of once you have joined. The Euro is permanently on the point of collapse, it just never quite topples over the edge, because it’s not clear what the alternative is, or even if there is one. As for “Europe” and attitudes to it, this is a very tricky thing. There are at least three separate but linked issues: the Euro and the whole ECB apparatus, the idea of Europe as a cultural/historical entity, and the European institutions. Simplifying a bit, you could say that elites like the Euro (for its utility in reducing wages and social costs) and the European institutions, whilst they dislike, and are even embarrassed by, the cultural and historical heritage. For most ordinary people, who may travel abroad once a year if that, it’s roughly the reverse.
    Where the article gets it quite wrong, is to say:
    “Banking union and fiscal union will only be regarded as legitimate if those responsible for their operation can be held accountable for their decisions by citizens. That means more power for the European Parliament – and less for national legislatures”
    Whilst that might be true in some abstract, architectural sense, it’s not politically realistic. The EP has little credibility in any country I know, and is seen primarily as a dumping ground for unsuccessful national politicians, a way of buying off opposition with a fat salary and nice working conditions, and a place to send Commission and other European officials on retirement. Indeed, it has a completely incestuous relationship with the organisations it is supposed to be overseeing. Ironically, the arrival of so-called “populist” MEPs later this year may actually improve things. But the EP is not the answer.

    1. Olga

      I almost agreed with you – but I think you miss the author’s point on the banking union. I (at least) read him to mean precisely that more power to EP is not realistic (for all the reasons you state).

      1. David

        I think he’s trying to say that in general European citizens are not keen on giving up more powers, which is true. That could apply to the EP as well, though I don’t think it was his main point. I was suggesting that, even if extra powers were given to the EP it would make little practical difference.

  5. /lasse

    Mário José Gomes de Freitas:
    “The single currency has been one of the biggest European success stories: there can be no doubt about its importance and impact over the first two decades of its history“

    Mário José Gomes de Freitas (Portuguese economist, former Minister of Finance of Portugal. now president of the Eurogroup and Chairman of the Board of Governors of the European Stability Mechanism.)

    Junker tweets: “for 20 years the €euro has delivered prosperity and protection to our citizens. It has become the symbol of unity, sovereignty and stability.”

    Do these un-elected stewards of the neoliberal monster on clay feet’s live in the same world as the people in Europe?

    As M Twain said; ‘Denial ain’t just a river in Egypt.’.

    The Euro, SGP, the Common Market, then year plans like the Lisbon Strategy and the latest Europe 2020; all where promised to deliver employment, growth and prosperity to the people in Europe, a very meager result from all of it.

    Some numbers of the Euro “success”.

    1. digi_owl

      Scant few economists live in the real world. They are so hung up with worshiping their preference graphs that they make a Chinese emperor surrounded by eunuchs seem positively in tune with the zeitgeist.

    2. IsabelPS

      Maybe I am too fastidious. But I am Portuguese and had to go check who is Mário José Gomes de Freitas. Google tells me that it is Mário José Gomes de Freitas Centeno, aka Mário Centeno, present Minister of Finances of Portugal and present President of Eurogroup (incidentally, no ex-Minister of Finances could be president of Eurogroup).

  6. Frenchguy

    Eichengreen is always interesting to read but, like most anglo saxons, he fails to point out the quite distinct situation of European countries. As he said, an independant monetary policy is in theory always better because you can adapt it to local circumstances. Contrary to what some assume, devaluation is not the main advantage, you seldom export out of depression and the US for example is too closed an economy to do that. The peculiar situation of European countries is that they are very inter-connected so there would be massive spillovers to other countries if each was following an independant monetary policy. And history has shown that political pression would be high to stop other countries drain the domestic demand. So it is quite likely that some sort of common monetary policy is necessary to politically sustain the single market. Anglo saxons are blind to that because the UK has managed to have its cake and eat it too (good for them but, evidently, it has only encouraged them to ask for even better terms). The EU can work with only one big country free-riding, I’m not sure if it could with more… We can certainlly discuss the pros and cons of each options and, probably, some sort of managed fixed exchange rate might have been better but, looking at unemployment rate in Italy and Spain in the 80s, the case is far from clear cut. Trolling version: Krugman, Mitchell & co were seemingly predicting never ending depression in Europe and I was quite convinced by them in 2012. 7 yrs later, unemployment has come down in Europe (and by a lot in Spain) and if things are far from perfect, they don’t seem an order of magnitude better in the UK or the US. So maybe the euro is not actually that important…

    1. digi_owl

      Kinda. As best i recall, the pre-euro situation was that most European nations had their currency “fixed” not against the USD but the west-German Mark (DM?).

      But “fixed” in the sense that whenever the DM had a major shift, the various nations would adjust their rates so that their relative position stayed reasonably stable.

    2. Ignacio

      Hi Frenchguy and thanks for your reply as well as those above which I would like to comment properly but for me it is difficult from the smartphone.

      This is to ask you and all EU commenters here if you feel, as I do, that although we pay more attention to state or nation wide elections it is really at the EU level where the important game is played, and where politics ate currently more influential on our living.

      1. José

        it is really at the EU level where the important game is played

        It is. But – as David correctly put it – the European Parliament being a mere dumping ground for unsuccessful politicians and having zero credibility among electorates it is in practice impossible for citizens to have oversight over the institutions that govern the EU.

        And that is probably the intention of the European elites – to govern from above with a minimum of obstacles from “below”.

      2. IsabelPS

        Ignacio, it is my belief that the majority of European citizens is not aware of the fact that most of the policies that are influential in the way they live is decided at EU level. Mostly because European Governments tend to attribute to “Brussels” any unpopular decisions and to their own agency everything they know it will be well accepted by their citizens. As it will be abundantly clear with Brexit.

        But I believe that, at the moment, national politicians and institutions are those at the receiving end of the citizens wrath.

        Incidentally, the EP might not have a lot of power and credibility, but the decisions are not taken by the Commission, really, but by the Council. And THEY are elected.

      3. Frenchguy

        Nationwide elections are where power is won. Lots of important decisions are taken at the EU level but they are taken by national leaders. The “hate” against unelected bureaucrats has nothing to do with Europe. If Europe wasn’t there, we would be pissed off againt unelected French bureaucrats (cf the US case). There are a lot to say against the “manageralization” of politics where political decisions are more and more constrained by what the bureaucracy thinks is possible (in France, it is made worse by the fact that most of the political class comes from the bureaucracy and thinks the same way). But the problem of timorous politicians who thinks that only very incremental reforms are possible has few things to do with Europe, it is an excuse, nothing more.

    3. Mael Colium

      What numbers are you looking at that tells you unemployment has come down in Europe? It’s worse for the Greeks, Italians, Spanish and now the French, where unemployment is flat or declining over the long term and under- employment is on the increase. Check the Eurostat medium and long run numbers.

    4. Mike Barry

      you seldom export out of depression and the US for example is too closed an economy to do that.


    5. Mike Barry

      you seldom export out of depression and the US for example is too closed an economy to do that.

      “Too de-industrialized,” not “too closed.”

  7. Susan the Other

    The EU survives because Europeans are all very similar people. The Euro is a medium of exchange, a medium of convenience. The fly in the ointment is a mindset – those elusive villains. Nostalgia for the Hanseatic League is like nostalgia for the Old South. It flourished in mercantilist days for maybe 200 years and went hand in glove with colonialism and piracy. It prospered because everyone was eager to trade (not so much now as we simply look for the cheapest labor, but back then it was needed more). And people who couldn’t manufacture products to trade made up the difference with gold, an insane asset. It was universally accepted. National currencies were based on the value of gold theoretically and everything sort of worked. So clearly the solution is for the EU to set sail for some new frontiers, find something to colonize quick. Either than or get real and start to understand that money today is a different animal. It is both a medium of exchange and a store of value. And that’s a problem. It is at odds with itself. A medium of exchange is a political thing and if it is accepted it provides a support system for valuing the unit of money at some agreed price. But it is not a smooth process and is constantly jerked back from the brink by elites who hoard it. The Hanseatic League foundered on the success of mercantilism and at some point after everybody and their rowboat became a mercantilist. Profits dwindled. So why did profits dwindle when everything seemed to be working? Lack of resources, maybe. Lack of demand, maybe. Same old, same old. The banks called in their loans. The value of money was above the value of civilization in a perverse logic because currencies actually make money valuable. Here’s what the EU needs: it needs to find or fudge a new asset of last resort. It can be as meaningless as gold or anything else. All it has to do is become a mental reality. So digits on a balance sheet will do. And keep their accounts in Euros humming forever with sufficient exchange to run a Union. We (the USA) have proved, cold, hard proof, that this system works beautifully. So the question is, What are they afraid of? Democracy is politics is sovereignty is money. And assets, as mother used to say, can be anything you want them to be.

  8. Cal2

    Read “Welcome To The Poisoned Chalice” by James K. Galbraith.

    Short version: Swedish private banks lend Euros to Greece, Greece can’t repay quick enough, European Central Bank steps in and pays off the private Swedish banks, then orders Greece to sell off airports, islands, health plans etc. Greeks resist. The nerve of them!

    1. Olga

      Yes, that is a good, short version. The question is how many more times can this be repeated. And/or what happens when the target is bigger?

    2. icancho

      Yes, Galbraith’s “Poisoned Chalice” is an excellent read. I was most struck by his reference to the work of Giuseppe Guarino, whom he describes as “dean of European constitutional scholars”. Galbraith quotes Guarino as follows: “On 1st January 1999 a coup d’état was carried out against the EU member states, their citizens, and the European Union itself. The “coup” was not exercised by force but by cunning fraud … by means of Regulation 1466/97. … The role assigned to the growth objective by the Treaty (Articles 102A, 103, and 104c), to be obtained by the political activity of the member states … is eliminated and replaced by an outcome, namely budgetary balance in the medium term. … The democratic institutions envisaged by the constitutional order of each country no longer serve any purpose. Political parties can exert no influence whatever. Strikes and lockouts have no effect. Violent demonstrations cause additional damage but leave the predetermined policy directives unscathed.”

      I am unaware of any reaction / rebuttal regarding Guarino’s analysis— and would be grateful for any pointers to same, but his discussions would seem to be relevant. Guarino’s views may be found at a site that compiles several of his essays: Many of these items are in Italian, but two English-language pieces that might be of interest are these: “SAGGIO DI VERITA’ 2 (TRADUZIONE INGLESE) 11.9.2014” and “THE CITIZENS OF EUROPE AND THE CRISIS OF THE EURO 27.1.2014

    3. Mark

      Correction to the summary:
      The Greek voters elected corrupt and irresponsible politicians who used the lower interest rates gained by the Euro during the 2000s for political goodies, increased consumption like earlier and higher pensions or public wages, instead of investing into increased future productivity to compete successfully or finally shoring up the tax enforcement system. After a while the inevitable happened and interest rates normalised. This put banks in danger and the ECB together with the elected national governments of these banks proceeded to make sure they do no suffer. An action which follows logically from the position of power these banks inhabit. This rescue put these national governments, in part via international institutions, in a position of power over Greece and they are now making sure that Greece makes them whole for the largesse given to their banks.
      An outcome which is not particularly humane but certainly just since those responsible for the situation, Greek voters, ultimately are the people who suffer.
      Anyone interested in history should be familiar with this story, although in the 21st century powerful countries prefer to use lawyers instead of the 19th century gunboat.

  9. nothing but the truth

    most economists hate the euro because it makes large fiscal deficits difficult.

    because they love selling the idea of a free lunch via economics.

    ie, a perpetual fiscal deficit which will supposedly solve all our problems.

    what has happened in reality is that that the FIRE sector has become the engine of asset inflation and recipient of bailouts.

  10. mrtmbrnmn

    To paraphrase Gen. Smedley Butler: The EU(nuch) is a racket. And the DeutscheEuro was the WMD that enabled Germany to refight WW2 and this time get a better result. The conquered continent today is a giant debtors’ prison. Mission Accomplished!

  11. Mark

    A diffrent take on 20 years of Euro.
    The Euro has established itself as a reserve currency accross the world second only the the US Dollar albeit by a large margin. It has proven to be both internally and externally acceptabely stable with low inflation and somewhat stable exchange rates against major trading partners.In addition it has made living and doing business in Europe a lot easier with fewer transaction costs. Therefore it should be considered a clear success as a currency. The next goal should be to improve its standing as trading currency between Europe and the rest of the world to allow citiziens of the Eurozone more indepence regarding their trade policy.
    Inside the Eurozone it has shown the power of private money creation and that those who do not harness it for productive means with good regulations will suffer in the long run. Best examples are Ireland, Spain and probably in the not so distant future Germany. Further by preventing the usual suspects from hiding their standard of living destroying policies by inflation/devalution the power of national, state and local governments and the need for those goverments to enact good policies has been made very clear. For the future it is on every voter to find and vote for politicians on every level of goverment who are going to enact productivity enhancing policies and sustainably distribute the gains to the whole population opposed to politicians who either want to further enrich the oligarchy by increased privatisation, low taxes and more FIRE sector influence or politicians who only promise to give out goodies without clear plans how to make the resources available on a long time scale in an increasingly damaged world.

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