History may or may not repeat itself, but hubris certainly does. In April 2008, as the euro approached its tenth birthday, Joaquín Almunia, the EU’s then Commissioner for Economic and Monetary Affairs, recalled how its construction had been accompanied by “dissenting voices”. “One economist” had jeered that it was “at best, an act of uncertain merit”. Another had denounced it as a “great mistake”. Fools! Almunia bragged that “the euro [had] proved an economic success”. Within 18 months Greece was in crisis.
Earlier this week Jean-Claude Juncker marked the euro’s 20th anniversary of with words seemingly so far removed from reality that not even sciatica could explain them away: “The euro has become a symbol of unity, sovereignty and stability. It has delivered prosperity and protection to our citizens…”
Goebbels once wrote that “the English follow the principle that when one lies, one should lie big, and stick to it. They keep up their lies, even at the risk of looking ridiculous”. However, he would not have expected the English to mock those who they were trying to convince.
Juncker, no Englishman, but known to some as “the master of lies”, has rarely shown much concern about appearing ridiculous. Nevertheless, boasting that that the euro has delivered prosperity insults almost every member state other than Germany, particularly those hit hardest by the bursting of bubbles wholly or partly inflated by the single currency. Most may have crawled out of the A&E (or in Ireland’s case done rather more than that), but memories of what they went through are fresh. And in some instances, they aren’t even memories. Youth unemployment in Greece has only recently fallen below 40 per cent. GDP per capita in Italy (where the euro’s corrosive effect is real, but more difficult to assess) stands roughly where it did in 1999.
On the other hand, Juncker’s claim that a currency which has brought chaos and division in its wake is a symbol of “unity” and “stability” may seem equally absurd, but seen from Brussels, it makes good sense. To appreciate why, note the reference to “sovereignty” as another of the qualities symbolised by the euro. A country that relinquishes its own currency gives up some of its sovereignty, but Juncker was focused on where that sovereignty had been transferred. And that was to “Europe”. Having its own currency represented a major advance in the EU’s step-by-step assumption of sovereignty, and with it, the attributes of a state.
Now adopt that same Brussels perspective to understand what Juncker meant by unity. Despite sharp disagreements, those running the Eurozone stuck together through the crisis, trashing treaty obligations, promises to voters, a referendum result, the integrity of the European Central Bank, economic logic and basic democratic norms to keep the currency union intact. They succeeded in a display of unity that also delivered Juncker’s notion of stability — a Eurozone that weathered the storm — as well as a strong indication that it will continue to overcome the challenges that come its way.
Part of the reason for that, is that once in the euro, there is no easy exit. “Ever closer union” are perhaps the three most important words in the EU’s definition of itself: They imply that there is no reverse gear. Nowhere is this more the case than, as its creators intended, with the single currency, described in 2012 by one top German civil servant as “a machine from hell that we cannot turn off” — words to remember amid current talk of widespread support for the euro.
But back to hubris. Like so much central planning, the euro was born of arrogance, over-confidence, conceit and ideological obsession. Cramming a large number of diverse economies into a necessarily Procrustean currency union made little economic sense—the savings flowing from the removal of foreign exchange risk were somewhere between minimal and illusory. It was also an invitation to disaster, made riskier still by the absence of any degree of fiscal union, something which might have provided a safety net, but would not have been politically acceptable in many of the countries signing up for the new currency.
One example of hubris overlapped with another. Some of those in charge of putting the euro together were aware of its innate flaws but expected that they would eventually lead to—as the phrase in Brussels goes— a “beneficial crisis”. This would be the catalyst for forcing through the fiscal union that had always been the logical counterpoint of monetary union and would also constitute a giant leap forward towards ever closer union. The hubris lay in believing that such a crisis would be manageable in the manner that Brussels hoped.
It wasn’t. Even allowing for its starting point, Juncker’s perception of unity is based on turning a blind eye to some highly inconvenient truths. Made even more destructive by its intertwining with the financial crisis, the storm that tore into the Eurozone essentially divided the currency union’s member states into two antagonistic camps, creditor nations in the north and debtor nations in the south.
The north’s distrust of the south, and the south’s resentment of the north, along with economic distress and the realisation that Brussels and its allies bore much of the blame for this mess (but had no interest in changing direction) also boosted political parties once confined to the fringe or triggered the formation of new parties that would once have found a home there. Those forces were given additional impetus by an unrelated issue— mounting unease over immigration and its longer-term implications. What’s more, many continental eurosceptics have been transformed from naysayers opposed to further integration into a force that actively wants to reverse the direction of ‘ever closer union’. Populist governments (of very different hues) have come to power in Greece and Italy.
Germany and other ‘northern’ states are now even more firmly set against fiscal union, rightly regarded as a device to milk their taxpayers in perpetuity. In the Eurozone’s south, meanwhile, there is increased resistance to Germany’s insistence on enforcing its sometimes counter-productive brand of fiscal discipline on everyone else. It’s significant that, with Emmanuel Macron’s own plans for fiscal union floating face-down in the Spree and gilets jaunes roaming France’s streets, his government will now be breaching (just a one-off, of course) the EU’s budgetary rules.
All that said, betting against the survival of the euro is unwise. The political will to keep this vampire currency going should, as the last ten years have shown, not be underestimated and populist parties are just as conscious as their more orthodox rivals of the general public’s fear of ‘something worse’.
But European growth prospects are deteriorating despite years of the ECB doing “what it takes”. The economies (and balance sheets) of many of the Eurozone’s weaker member-states continue to suffer from the after-effects of the last crisis and remain confined to the straitjacket of a one-size-fits-all currency: They will not be well placed to cope with a fresh slowdown. It’s hard to avoid the conclusion that another Eurozone drama may well be approaching, with political consequences that are likely to be much trickier than last time around.
One way to head off some of the worse of what might lie ahead would be by splitting the single currency into ‘northern’ and ‘southern’ euros which would better reflect the economic realities of the domestic economies they serve. This would be far from straightforward, but it beats sticking with a status quo that offers much of the Eurozone little more than stagnation at best, and catastrophe at worst.
But such a split runs against the idea of the irreversibility of ever closer union. It’s never going to happen.