Between re-reading history and predicting the future, politicians and economists have had a hard time agreeing on the question of the Euro. Yet the date 1st January focuses attention and often eludes this currencys past. The Euro replaced our national currencies 3 years ago, and we have been moving towards this objective for 30 years. Only the symbolic support, the concrete representation of currencies that no longer exist, disappeared on January 1st.
As well as this, the consequences of the Euro have not all waited for the symbolic date of January 1st 2002 to manifest themselves: over the last 3 years we have already been able to account for the effects of the Euro on the financial level.
We are above all led to question ourselves over the incoherence of certain discourses, which target economic objectivity whilst staying faithful to ideologically oriented positions. It also appears that the taking into consideration of social variables has been avoided, wiping away the pressing need of associating a new currency zone to one of shared political, economic, and social responsibility.
Monetary policy is more than a change of appearances
If the arrival of the first Euro notes and coins constitutes a great event for 300 million Europeans, monetary policy, less visible to the consumer, has a greater impact on our economies than changing the appearance of our notes. It is a policy that our countries have made jointly, a monetary policy that itself is the fruit of a stronger will for integration among our nations. A will that is no longer limited to the economic. This monetary policy has existed now for 30 years: already in 1972 we abandoned, obliged by circumstance, a part of our room for manoeuvre in monetary policy. The European Monetary Snake was a system that limited the fluctuations of European currencies compared to the dollar.
This is why the concentration of debate on the arrival of the new printed currency is hardly pertinent, when the usage of the Euro has been reality for 30 years.
United we stand, divided we fall
In 1979, the European monetary system permitted the creation of a stable monetary zone. In July 1990 the first phase of economic and monetary union entered into effect, which allowed to be put in place the principles of economic convergence, the principles of mutual surveillance and finally the creation of a common central bank in 1998 and the birth of the Euro, the 1st January 1999. Always the underlying idea was that the fluctuations of our little national currencies could only have the effect of generating unfavourable distortions on the growth of our economies. The introduction of the single currency is nothing but the end of this stabilisation process. All these years have been given over to the coming together of our economies in order to make it possible to finally adopt a single currency and therefore a common monetary policy. This has been a fait accompli for some time. The European Central Bank, the independent central bank in the world, already decides our monetary needs, sheltered from all political pressure.
The Euro, victim of ideological instrumentalism?
With the palpable appearance of the currency, theoretical debates have gotten louder. For some Europe is not sufficiently homogeneous to dote itself with a single currency. For others the introduction of the Euro is forcing the march towards unification. For the partisans of a strong currency, the Euro has already demonstrated its weakness, for the partisans of a weak currency, the Euro will be too strong. For the most enthusiastic, the Euro is the fist strong, concrete symbol of European identity. For the most pessimistic, we were wrong to confide the management of our currency to a bureaucrat whose career depends on no election; we will lose our well-being.
Political interests are expressed on the question of this currency; it is seen as a symbol, an instrument of power and domination or, on the contrary, a loss of national freedom and the admitting of structural weaknesses.
Finally, we are far away from the idea of the first classical economists, for whom the currency would be only a curtain, a neutral instrument to facilitate exchange. Many other considerations come into account; a debate of ideas is born at the European level.
The Euro identity?
We would like to make the Euro the symbol of the identity and the will of Europeans to live together. At the same time, currency, if one of the defining elements of national identity, cannot fulfil this role. This rests equally on history, political traditions, and common values. More than the identity of a group, currency is a sign of the hands-on character of centralised power on a territory. Yet the Euro has the singularity of being a common currency which is no longer the sign of a centralised political power, but which should accelerate its formation. The single currency will in time imply political union, the continued convergence of policy, firstly economic but also social. Faced with the hesitations on the definition and form of the political Europe that appeared with the Amsterdam and Nice treaties, the functionalist vein that prevailed at the creation of the EEC in 1957 was once again reaffirmed. This actually helped community building to escape the impasse where it had been thrown by the failure of the European Defence Community in 1954.
Will political Europe outstrip economic Europe?
We can doubt Europes capacity to create alone a European identity without which political Europe is doomed to failure. To focus the attention of the general public on the great convergence effort which allowed the Euro to be put into place in order to leave unheard dissenting voices on Europe is dangerous. In making political Europe dependent on the Euro, we take the risk of throwing certain disaffection on political union if for psychological or cyclical reasons the Euro does not live up to expectations.
Politics and economics: the right balance
The incoherence of current debates on the Euro is due in part to the weak position accorded it in economic forecasts. Again, the focus of debate on 1st January 2002 has not played a positive role. If the new currency now enters our wallets, the Euro has already been a daily reality for 3 years. And while economists and forecasters have been able to observe throughout this period the difficult maturing of the community currency, public opinion has hardly benefited from clear and complete information on the chaotic beginnings of the Euro, which took us more or less by surprise. This serious lack of information and debate means one more handicap in the new economic system, which will not find coherence until a real zone of responsibility and initiative completes the monetary zone.
Causes and consequences of the trials of the European Monetary System since the adoption of the Euro as a common currency
Ever since the first half of 1999, the Euro has seen a strong depreciation that has been the object of a debate more concerned with attempts to hide problems than with realist forecasts. At the end of 1998, economists pointed out an excess of the European balance of payments and an American deficit. The foreseen consequence was the rise in demand for the European currency, which would then have the tendency to be overvalued. It was also thought that central banks would stock large Euro reserves. These figures incited, before the launch of the Euro, great prudence. Some went as far as envisaging a possibility of long-term overvaluation.
However, despite these optimistic predictions, the Euro continued to devaluate throughout 1999. In order to explain this devaluation, economists provided numerous hypotheses, like the predicted growth differential between Europe and the United States. The growth rates predicted for the US were stronger than those predicted for Europe, and would have contradicted the hopes of long-term growth in demand for the young currency. As for the few benefits brought by the depreciation of the European commercial balance, they were reversed by the heavy deficit that was caused on the level of capital balance.
A flagrant political deficiency
One of the first hypotheses clearly remains the political deficiency of the new economic area. The weaknesses of the new system first appeared in the incapacity of the Europe of 15 to respond in a coherent manner to the devaluation crisis, notably because of institutional imbalance. The most obvious symptom of this is the quasi-absence of a co-decision mechanism that would associate the European Central Bank with national and community politicians. The discredit thrown on the director of the ECB, Wim Duisenderg, demonstrates this.
This weakness is largely due to the fact that, inspired by the functionalist vein, the installation of the European Monetary System is expected to create a knock-on effect which will accelerate the move towards co-decision. Yet the functionalism that characterises the institutions of communitarian Europe should not prejudice the economy, especially in the contest of crisis and slowing growth. Above all, such a weakness risks too strong a limit on our economic independence. Through a lack of political initiative, we risk at worst to content ourselves with perpetual adaptation to the world economic context, at best to play in it a small role. Whatever priority shall be accorded to the political or economic dimension, the two are indissociable if we wish to achieve the creation of a coherent economic and monetary area. This is not an ideological attack, but the necessity of common sense.