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There Is One And Only One Way To Save The Euro

Analysis: Greece or no Greece, the problem of the European single currency runs deeper. So no tricks -- no Northern and Southern or National versions of the euro -- can save it. Europe's leaders must decide if they are playing for keeps.

The procession has begun (Luther Blissett)
The procession has begun (Luther Blissett)
Jean-Marc Vittori

PARIS - Will the euro still exist in a month, a year, a decade? I accidentally answered the question a while ago at a bakery when an owl ended up in the palm of my hand. The owl was on the one-euro coin minted in Greece, much more gracious than the excessively geometric French tree, the imperial German eagle or the nostalgic Irish harp.

Instead of using it again, I put the coin away in a desk drawer without really knowing why. Now I do. I want to keep it for my sons as a reminder of a time when Greeks believed they could blend their money into a European project. And when Europeans believed they could share a currency without sharing their destiny.

A Greek tragedy

Let us start with Greece. The first act of this tragedy is well known. It is the individual refusal of taxation, deeply entrenched in the national culture (behavioral economists show for instance that Greeks aren't as sensitive as other populations to signals condemning the transgression of a norm). The second act was the country's entry into the monetary union, accepted for noble reasons (an anchoring in European democracy) and less noble ones (this little country can't cause a lot of damage even if it cheats a little).

The drama took shape in the third act when, reassured by Greece's euro-zone integration, investors blindly lent it mountains of money. It unfolded in the fourth act. Investors opened their eyes and suddenly stopped lending. The state suffocated, as did growth. This activated a vicious circle. The other European countries and the International Monetary Fund have taken over financing in exchange for austerity measures that hinder growth and keep the Greek state from sticking to its payback commitments.

For nearly three years, Greece has been struggling in an infernal circle with no exit. European authorities and investors have reduced the debt, spreading out the payment over time and accepting to take some losses. But as production dives, the state is bringing in fewer taxes - and paying back the debt is still as difficult and unsustainable.

A looming ‘Grexit"

For Greeks, the situation keeps getting worse. This year, per capita income will almost reach back down to 2001 levels - the year Greece joined the euro - even though they were superior by 20% in 2008. Voters have come to their conclusions. Only one out of six Greeks thinks that European integration strengthened the country, as against a third of the French or nearly half of Spaniards. And only one third of Greeks have a favorable opinion of the European Union (all of these numbers come from the very enlightening Pew Research Center poll from May).

Sooner or later, people will end up asking their leaders to follow the only path that has yet to be explored: leaving the euro. Motivated by desperation, this political choice will be an economic catastrophe, at least for half a decade. But history is full of decisions taken for apparently viable political reasons that led to predictable economic disasters. The declaration of war in 1914 is a perfect example.

The euro zone will be a fractured edifice after Greece leaves. Investors will inevitably wonder which country will be next. The situation would be different if Greece was a black sheep in a flock of white lambs. After the intruder's expulsion, everything would have been for the better. But it isn't the case. In the European flock, no sheep is white. Some are light grey, some are dark grey, and others are almost black. And situations can quickly evolve. No European state, not even Germany, can resist a "sudden stop" when investors immediately halt lending to a debtor they don't trust.

Scenarios with a northern euro and southern one, or with Germany's exit (very much discussed at the moment), or with national euros sheltered behind a common European euro - these are all very nice intellectual constructions. But they are doomed to remain imaginary for one obvious reason: money is an accumulated capital of trust - in other words, money's worth depends on how much faith you put into it. You can't play with money like you do with a political platform or a company business plan. You can't change monetary systems every five or ten years, because it's too complicated. And as history shows once again, monetary manipulations are always punished.

How the euro might survive

There is only one solution to keep investors from betting tens, even hundreds of billions of euros on who will be the next to quit the single-currency pact: capital control. Once banned by the IMF, the tool has recently made a comeback, and China and Chile seemed to have successfully wielded such limits and regulations of capital markets. But it goes against European Union rules and against its underlying philosophy.

The euro is therefore doomed to explode. Unless…unless Europe really becomes a union. The necessary elements have been mentioned over the course of the latest economic news and catastrophes: a common debt ("Eurobonds'), a banking union, federal intervention in country budgets, common social systems (such as an unemployment net) to organize transfers between healthy and unhealthy regions…

To save the euro and, the work of the past 50 years of European construction, it is necessary to do all of this at once, in order to build a real federation, which was Europe's founding fathers' goal. It isn't impossible. But this revolution cannot take place without popular consent and without the people. Otherwise, the European dream threatens to vanish.

In the meantime, to complete my collection, please send me the beautiful Finnish euro with its marsh berries, the Slovakian cross and the superb Palazzo publico of the San Marino Republic.

Read more from Les Echos in French.

Photo - LutherBlissett

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Image of Colombian President Gustavo Petro speaking during a press conference in Buenos Aires on Jan 14, 2023

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Manuel Cortina/ZUMA
Héctor Abad Faciolince


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Words are a strange thing, and in literal terms, we must distrust their meaning. As I never hit anyone, I have never declared that I wouldn't. It never occurred to me to say it. Strangely, there is more power and truth in a simple declaration like "I love her" than in the more emphatic "I love her so much." A verbal addition here just shrinks the "sense" of love.

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