The aim was noble. The euro was supposed to be tangible evidence of unity on the European continent. The economic benefits would be such that everyone would get ahead. Now, things look very different. Greece has been on life support for six years and populists everywhere are calling for a return to D-Marks, francs or guilders. It is a proposal not without merit, considering all the acrobatics needed to prevent the euro from collapsing under its own weight.
In principle, a common currency ensures that goods and services cost roughly the same everywhere. With the introduction of the euro the exchange rates of the nineteen Eurozone countries were fixed, making prices directly comparable, while trade between countries ensures that any differences eventually balance out. Thus, a computer in Italy should cost the same as one in Germany, allowing both countries to be equally competitive on the global market.
But in practice things are more complex. The individual euro countries have long viewed exchange rates in different lights. Whereas countries like Germany and the Netherlands place great value on a stable exchange rate, elsewhere the exchange rate is seen as something of an economic afterthought, where price rises and decreases in competitiveness are absorbed by means of devaluation. This is not possible with a fixed exchange rate. By denying this for too long, some countries have priced themselves out of the market.
As a result, a ‘multi-speed’ Europe has emerged, with Germany and other northern countries as the economic motor, while the south is trying to keep up. This requires major sacrifices in terms of falling purchasing power and high unemployment, as Greece and Spain can testify. But France and Italy, too, look back on the last two decades as lost time, while Germany and the Netherlands celebrate one economic success after the other.
A monetary union will not last long if everyone has a different take on economic reality. This was neglected during the drafting of the Maastricht Treaty and its aftermath. People were all too ready to assume that the euro would bring about the solidarity the monetary union could lean on. Instead, the opposite has happened: due to a lack of solidarity and the hasty introduction of the euro, the monetary union is in danger of dying an early death.
Solidarity is by no means unknown to the member states. Even before the euro the countries were themselves small monetary unions. Weaker, often rural, regions suffered under the success of the stronger ones, which drove up the value of the currency. It was the sense of solidarity that saved them from poverty as a result of wages and cutbacks. This sense of solidarity manifested itself in the form of benefits, grants for companies and contributions to infrastructure and education.
However, with the creation of the euro any form of solidarity has been a priori ruled out. The monetary union is modelled in the image of Northern Europe, with an independent central bank and strict fiscal rules. As a result the collectivism of the Catholic south has lost out to the individualism of the Protestant north. One could even argue that the south willingly surrendered to the cultural assimilation to which they would inevitably succumb, and which is now being enforced by means of loans.
It’s not hard to guess what this will mean in terms of support for the euro. In Northern Europe the currency exists for the purposes of economic gain, a goal undermined by internal instability and pleas for help from the south. The countries of Southern Europe are likely to conclude that they can halt the reforms only through complete cultural assimilation with the north. Meanwhile, people with the means to do so will head north, leaving their own countries poorer even as they arrive in a world where immigration is already unpopular.
Those who think they would be better off without the euro should remember there is a price to pay for leaving the Eurozone. The value of issued loans will drop due to devaluations of the reintroduced currencies, or as a result of ill-will they will not be paid off at all. The same applies to outstanding claims in the banking system. Moreover, the depth of European integration means that if the euro frays, economies will suffer. Not to mention the fact that reintroducing a national currency would be a massive operation.
Yet chances are that the euro will fail, at least partly. Not only are populists everywhere keen to pull the plug on the currency any way they can, but its economic foundations have become so wobbly that even a small shock could bring the euro to its knees. Still, this is not inevitable. The euro is a route, not a destination. Its aim should be to keep people engaged with one another; to help them uncover and understand the value of working together over dying together.
And so the crises facing the euro and the monetary union are not economic, but moral. What’s more, their roots can be traced not to the south of Europe but to the north, where countries like Germany and the Netherlands have reduced the common currency to a commodity that ought to pay off. Yet a community requires a willingness to sacrifice, altruism in the short term, in order to improve the partnership in the long term. This is a sentiment even anti-Europe populists are now scoring points with.
The euro is there for cultural purposes, to bring people together, not to crown Germany as the European supreme through the law of economic might. If Northern Europe cannot learn to look beyond its own narrow self-interest, if it fails to cancel debts, support struggling countries through adequate investment in education and innovation and bolster weak regions with industrial policy or subsidies, then there is no basis for the euro. Without solidarity, there can be no lasting common currency.
Michel Brouwers is a commentator and writes about politics, economics and society. Read more of his work at www.michelbrouwers.com