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The Unifying Role of the Single Currency

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The Unifying Role of the Single Currency A Service of Leibniz-Informationszentrum econstor Wirtschaft Leibniz Information Centre Make Your Publications Visible. zbw for Economics Andor, László Article The Unifying Role of the Single Currency Intereconomics Suggested Citation: Andor, László (2018) : The Unifying Role of the Single Currency, Intereconomics, ISSN 1613-964X, Springer, Heidelberg, Vol. 53, Iss. 4, pp. 215-220, http://dx.doi.org/10.1007/s10272-018-0752-5 This Version is available at: http://hdl.handle.net/10419/191191 Standard-Nutzungsbedingungen: Terms of use: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Documents in EconStor may be saved and copied for your Zwecken und zum Privatgebrauch gespeichert und kopiert werden. personal and scholarly purposes. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle You are not to copy documents for public or commercial Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich purposes, to exhibit the documents publicly, to make them machen, vertreiben oder anderweitig nutzen. publicly available on the internet, or to distribute or otherwise use the documents in public. Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, If the documents have been made available under an Open gelten abweichend von diesen Nutzungsbedingungen die in der dort Content Licence (especially Creative Commons Licences), you genannten Lizenz gewährten Nutzungsrechte. may exercise further usage rights as specified in the indicated licence. www.econstor.eu DOI: 10.1007/s10272-018-0752-5 Euro László Andor The Unifying Role of the Single Currency Perhaps the single most tangible symbol of the European Union is its single currency, the euro. Within the European Economic and Monetary Union, it was seen as a tool to ensure that European integration would be truly irreversible. However, the euro has also contributed to cleavages and asymmetries. This article reviews whether the euro can fulfi l the unifying role envisioned for it, examing the importance of the euro in four crucial European relationships. The European Union was designed with the goal of over- tively, and they enjoyed a honeymoon period without ma- coming the various forces of nationalism that had divided jor challenges to the euro. However, under their succes- the continent for centuries. As a programme of peace, it sors Angela Merkel and Nicolas Sarkozy, the cohesion and includes certain economic tools, one of which over the last sustainability of the currency union were called into ques- three decades has been the common currency. Launching tion as fundamentally new challenges arose: the Great Re- an Economic and Monetary Union (EMU) in the early 1990s cession of 2008-09 and the subsequent eurozone crisis. was explained by the need to fully exploit the potential of the Single Market, but it was also seen as a tool to ensure The Franco-German tandem did not collapse with either that European integration would be truly irreversible. It is, Merkel-Sarkozy or with Merkel-Hollande, yet the enduring however, unclear to what extent the single currency can crisis did manage to deepen the intellectual and political fulfi l its unifying mission. Based upon the development of divide between the two countries, making it harder to de- the recent fi nancial crisis and reform period, it is important sign and implement the reforms needed for the long-term to examine this question at four levels: the German-French sustainability of the euro. axis, the North-South polarisation, the divide between the UK and the Continent, and the East-West asymmetry. Brunnermeier, Landau and James explored this intellec- tual divide.1 The trio of German, French and British econo- German-French partnership mists explained that Germany regards the Economic and Monetary Union as primarily a rule-based stability union, Monetary integration in Europe, like economic integra- while France on the other hand considers growth and sta- tion in general, has always relied primarily upon Franco- bility to be of equal importance, allowing for the discre- German cooperation. This cooperation has itself always tionary use of common policy instruments in the case of relied upon a certain personal connection between the crisis. countries’ leaders. This is why it was very important in the 1970s to initiate a meeting of minds between Valéry Gis- While it can be said that the eurozone has recovered from card d’Estaing and Helmut Schmidt. These two leaders, its deep crisis, it is unclear whether it is prepared to han- fi rst as fi nance ministers and then as President and Chan- dle another one. Emmanuel Macron knows this well, and it cellor, worked together to develop the European Monetary was no coincidence that his fi rst foreign trip after assum- System (EMS). Another outstanding couple: Francois Mit- ing offi ce was to Berlin. Macron is Merkel’s fourth counter- terrand and Helmut Kohl, who facilitated the 1992 Maas- part in Paris, and he launched his campaign knowing that tricht Treaty together. he had only a brief window of opportunity to convince the German leadership of the importance of substantial euro- When the euro was introduced, Gerhard Schröder and zone reform. Jacques Chirac were Chancellor and President, respec- Following the 2017 federal elections in Germany, in which both major parties lost portions of their support, the fi rst attempt to form a coalition government occurred between László Andor, Corvinus University, Budapest, Hun- the CDU-CSU, the FDP and the Greens. This attempt gary; and Foundation for European Progressive Studies, Brussels, Belgium. 1 M.K. Brunnermeier, J.-P. Landau, H. James: The Euro and the Battle of Ideas, Princeton 2016, Princeton University Press. ZBW – Leibniz Information Centre for Economics 215 Euro failed, and one of the primary reasons was disagreements tive of this crisis focuses on overspending by the Southern regarding the need for and direction of eurozone reform. European governments. It is claimed that they violated the The renewed Grand Coalition between the CDU-CSU and EMU rules, in particular the defi cit threshold of three per the Social Democrats emphasised its openness to dis- cent of GDP. In reality, Spain and Ireland complied with all cussing eurozone reforms, though without committing to existing rules, and the violation of the Maastricht criteria a specifi c package of measures. was not a major problem in Italy or Portugal either. Cer- tainly, all affected countries committed some mistakes, The Franco-German understanding in the area of eco- and the public budget of Greece violated all of the EMU’s nomic policy and more specifi cally eurozone reform has rules. However, the imbalances were caused primarily by been cultivated by the cooperation between two groups of capital fl ows from the eurozone centre towards the periph- economists: the Eiffel Group and the Glienicker Group. An ery, together with the fact that the EU was unprepared to important outcome of this cooperation was the publica- handle the consequences of these fl ows. tion of a paper by 14 French and German economists in early 2018 which generated a wider debate on the immedi- The incomplete design of the EMU has been particularly ate tasks of EMU reform.2 disadvantageous for the eurozone periphery.3 During the eurozone crisis period, major divergences developed be- However, intellectual convergence between the two sides tween the North and the South. With or without assistance has been made harder to achieve due to mutual mistrust, from the troika, countries in the periphery took a much including misconceptions about each other’s objectives. bigger dive into the “double-dip recession” in 2010-11 than Stereotypes about the weakness of the French economy the countries in the eurozone core. Financial fragmenta- are widespread in Germany. In reality, the performance of tion and capital fl ight caused longer and deeper reces- the French economy remains only moderately weaker than sions in the periphery, which pushed unemployment to the German one, and French public debt is just moderate- record high levels and increased poverty levels, too. Po- ly higher than it is in Germany. These gaps do exist, but litical structures were shaken. Legacy problems continue they appear to be minor, especially if one takes into ac- to linger well after the acute phase of the crisis, for exam- count better demographic trends on the French side and ple in the form of unsustainable public debt in Greece and complex defence functions fulfi lled by the French state. banking sector uncertainty in Italy. France does not need a check from Germany. That is not These developments can be explained by the fact that the the reason why it tends to challenge German ordoliber- designers of the Maastricht system (the members of the alism and its views on the monetary union. What France so-called Delors Committee) underestimated the impor- does need is a political victory for the euro, one based up- tance of fl exible and adjustable exchange rates, and over- on two policy shifts. First, Germany would need to boost estimated the capacity of the EU’s political mechanisms investment and wages in order to reduce its huge current to introduce the missing elements of the EMU (common account surplus and consequently generate greater de- banking regulation, economic governance, fi scal risk-shar- mand at home and inside the entire eurozone. Second, ing, etc.) without a major crisis, i.e. in a preventive fashion. Germany and other surplus countries would have to ap- prove some new fi scal tools which are needed not primar- Undoubtedly, the pre-crisis currency union was far more ily by France but rather by countries in the eurozone pe- developed than its predecessor, the European Monetary riphery, i.e. Ireland, the Baltic States and Southern Europe. System (EMS) that existed in the 1980s, since the national currencies had all been abolished and the European Central North-South polarisation Bank had been established.
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