The Euro's Messy Birthday - But Its Best Years Are Still To Come
Op-Ed: Things look gloomy indeed as Europe's single currency marks exactly 10 years since going into circulation. But even in this lowest moment, we can pinpoint the path forward. And it may start by acknowledging that Greece, for the good of all
BERLIN - The euro has been our currency for exactly 10 years now, and the birthday kid is not doing so well. There will, indeed, be no celebration to mark the anniversary of the Jan. 1, 2002 arrival in circulation of the single currency.
Neither politicians nor the people they lead are in the mood for giving thanks to the hair-raising debt crisis and the monetary union's uncertain future. All of this leaves pessimists talking about a break-up of the euro zone, or the exploitation of Germany in the form of a transfer union. Pick your poison.
In times as turbulent as these, whoever dares to be optimistic can envisage a stabilized union in which member countries no longer live above their means, as whole new avenues of solid growth open up. This indeed could become reality, if nobody loses sight of the goal.
Before the euro was even introduced, many were prophesying its doom. Nobel prizewinner Milton Friedman pointed to the marked differences among member countries, and warned that the euro would only hold for a few years. He was right in the sense that the euro zone was never an ideal space for a common currency – and it wasn't only the gap in living standards that separated North and South. Traditionally, economic and monetary policies are very different. And while workers in the United States think it's normal to move from one state to another for work, job mobility in Europe is to this day relatively limited.
But despite these sobering circumstances, the first decade of the euro can be chalked up as a success. The 2002 switch to the currency was a logistical masterpiece and went off without a hitch. Even the skeptical Germans, many of whom were loath to give up the D-Mark, quickly got used to the new bills and coins and a different name for their money. Businesses and tourist operators benefited from no longer having to convert money, a bothersome – and expensive – procedure.
For a while, Germans called the new currency the "Teuro" – a play on words, "teuer" in German meaning: expensive. But in reality only a few companies used the switchover to secretly raise prices. Altogether, the rate of inflation over the past few years has been as low as it was with the D-Mark. And as compared to the dollar, for a long time the European currency was more stable.
However, the crisis has made people lose sight of the currency's unquestionable advantages. In fact, most Germans have come to believe that they would have fewer problems without the currency union. Germans are galled by the idea of having to fear for the stability of their money. They worry about inflation. And mistrust is multiplied by the fact that an Italian – whose country is the biggest source of uncertainty at the moment -- now heads the European Central Bank .
Then there's the feeling that the politicians are not in command of the situation, that they are being led around by the nose by the markets. The crisis has widened the divide between normal citizens and the Europe of the political class. There's not much elucidation from the politicians, so nobody knows where things are headed. The last two years have seen contracts broken, and ever larger aid packages put together hastily first for Greece and then Ireland and Portugal. But instead of calming markets, all this has only led to more turbulence.
Through the haze, signs of hope
Recognition set in late – but not too late, let's hope! – that nothing would be solved by constantly increasing liabilities, and that the way forward is through systematic, credible austerity and reform policies.
With determination, the new Italian government set out to get not only the budget but the whole country on track. Spain's new government has promised significant savings. And there's hopeful news from Ireland. Countries are taking action because the markets are demanding to see that concrete steps are being taken. If the threat of high interest rates may have driven some of the overdue changes, perhaps too the realization is finally beginning to take hold that over-indebtedness ruins societies.
The best Europeans are by no means the ones who continue to pay lip service to the expectation that, in the name of solidarity, Germany and France should cough up for wobbling economies. That would lead not only some countries but the entire Eurozone to bankruptcy. That's why Euro Bonds or unlimited use of the European Central Bank – the big bazooka – are so dangerous. They would weaken the will to reform in the over-indebted countries, and the contagion would spread. Not to waver on these points is Chancellor Merkel's No. 1 task next year.
In the mid-term, the borders of the currency union will change. It's very questionable if Greece has the strength for high-powered modernization – and if it were to leave the union, Euroland can take it. And for the Greeks themselves, that looks like the more promising solution.
And it's a good thing that in Brussels, Berlin and Paris thinking along these lines is no longer taboo. Because when a country continually fails to meet conditions, separation is better than loosening the rules which would allow a lack of rigor to seep through the whole community. Eastern European and Baltic countries like Poland, the Czech Republic or Latvia might soon join the monetary union, and expansion of that sort offers big opportunities. After the fall of the Communist bloc, these countries had to reinvent themselves, and many of them landed on their feet.
They bring a whole new dynamic that Euroland would benefit from. Eastern Europe has come down on the side of market economies and global competition. Their citizens have shown phenomenal adaptability, and are today reaping the fruits of that. If southern Europeans are prepared to deliver something along similar lines, then the euro's best years are still ahead.
Read the original article in German
Photo - anaulin