It is 20 years since the most ambitious European integration project came into effect: the common currency, known as the Euro. Europhiles (and I am one) would do well to understand the successes and failures of this project, as they pose important challenges to the future of European integration.
British Europhiles, of course, have a wonderful way to distract themselves from such searching questions: Brexit. Most will admit that there are problems, and that changes need to be made, but then they swiftly move on to talk about the latest nonsense put about by supporters of Britain’s exit from the EU. But what happens when Britain eventually does leave? Or what happens if, against the odds, Brexit is stopped? The political initiative will swiftly move back to the Brexiteers, and they will pose hard questions about the way the EU works. Questions to which few Europhiles have convincing answers. We rightly accuse Eurosceptics (most of them) of harking back to a fictitious golden age. But Europhiles are becoming as bad: the years before the 2016 referendum are acquiring a rose-tinted glow. We should be able to do better than that.
Which is why we need to think about the Euro. It is central to the whole European project. Britain opted out: but that was an early sign the country’s fatally semi-detached status within the union. If Britain leaves and then wants to come back in, it is unlikely that the EU will let us opt out again. It will be a test of how serious we are.
And it is likely to still be there in the 20 or 30 years time when Britain might be ready to consider re-entry. One of the most important things we have learnt from the currency’s first 20 years is that it is a survivor. Anglo-Saxon economists have sneered at the Euro from when it was first mooted. First they said it would never happen, nearly up to the day that it did. Then they said it would fall apart: this reached a crescendo after the Greek crisis in 2010, when one after another fringe zone economy got into trouble. And yet not a single country has dropped out. We need to understand why it has proved so robust, especially when in almost every other way the currency has been a disappointment.
It is, of course, technically very difficult for a country to leave the common currency. You have to develop a brand new replacement currency. Difficult, but far from impossible; plenty of people have thought about it, and come up with various approaches. Countries could do it if there was the political will. But there isn’t, not even in Greece. The hard fact is that the common currency is popular amongst ordinary working people. Polls show that this popularity fluctuates (it is on a bit of a high right now), and it can be a bit of a political scapegoat. Populist politicians in both France and Italy have complained about it (with the full support of those Anglo-Saxon economists), but the closer they get to actual action the more their courage fails. Marine Le Pen in France has had to backtrack; those Italian leaders in the League and Five Star Movement are likely to make the same journey.
It’s not hard to see why. To ruling elites and economists a currency is a means to an end, rather than something in itself. They tend to have a “use it or lose it” attitude to it, and think a little bit of inflation is a jolly good thing. Nothing illustrates the patronising attitude of these elites towards the majority of those they serve better. To most people the currency is a sacred bond of trust between the state and the citizen. Since time immemorial, when kings used to put copper in gold coins to pay for wars and their own high living, this gap between the perceptions of the elite and working people has created resentment by the ruled of those than govern them. For most Europeans, especially those in weaker economies, the Euro is a much more secure store of value than any local currency that would replace it. Especially since the entire purpose of those populist politicians in ditching the currency is so that they can devalue it, and secure the supposed wider economic benefits that would flow from that. And for those that borrow money rather than save it, the interest rates for the Euro tend to be lower too, so even they win out. The relationship is more complex for northern economies, like Germany’s, that might see a currency of their own rise in value. Indeed in these countries the Euro is not so popular. But it helps drive an export-led economy and secure jobs. Interestingly, Britain is at the intersection of these two groups. It’s fair to say that most ordinary people would rather trust British institutions to run their currency than European ones. And neither do export industries play such a great role in providing stable jobs as they do in Germany or the Netherlands. Scepticism about the Euro is more understandable here.
We should be careful not to overstate the popularity of the Euro. Amongst younger workers, in Italy say, who are struggling to find stable employment and save money, the Euro is not popular. But savers form the political bedrock of most developed nations. And to them the stability of the currency is no small thing. The rise of Nazism in Germany is often attributed to the failure of democratic institutions to prevent hyperinflation; conservative monetary policies are still a given in that country. Perhaps after preventing foreign invasion and keeping the streets and homes safe from criminals, people see maintaining the currency is the most important duty of a government: even higher that producing a healthy economy, which, after all, is mostly down to individual work and enterprise, not governments.
The European institutions have fulfilled that duty with respect to the Euro, in many cases better than the national governments that preceded them. So the currency remains broadly popular, and ways will be found of ensuring its survival as long as it holds its value. But in many other ways those Anglo-Saxon economists have been proved right about the Euro. It has not delivered the other economic benefits promised on its creation. Indeed the robustness of the currency can be seen as a trap, or a prison, preventing political leaders from delivering prosperous economies. Why this should be, and what can be done about it, has become one of the top priorities for European leaders. That is a topic I will consider in a further article.