TWENTY years ago, the single European currency, the euro was born. Though the actual cash would not appear for another 48 months, the eleven founder countries were each locked in value against the new currency.
In the past, new currencies have been created to replace a failing predecessor. Never before had a single currency overnight become the sole means of exchange among so many different states. It was a remarkable maneuver which has now been extended to 19 of the 28 EU member states. After the US dollar, the euro is the world’s second largest reserve currency. A recent survey showed the currency is now widely accepted among the almost 342 million Europeans that use it. A generation has grown up knowing nothing of French francs, German marks and Italian lira.
The euro’s creation was the more remarkable for the fact that it came into being primarily as an act of political will rather than through economic necessity. While it was clearly helpful to have transactions across eurozone states settled in the same currency, the fact was that in another form, the euro had already existed. The European Currency Unit, the ECU, came into formal being in 1979. It was made up of a weighted basket of 12 continental currencies. While it was not something ordinary citizens could put in their wallets, it was an invaluable unit of account which reflected the fluctuations in the value of the constituent currencies and by extension, different national interest rates.
The visionaries in the European Commission in Brussels saw the creation of a single currency as an essential building block for a future United States of Europe. The existence of the euro would impel the close coordination and ultimately the unity of the finances of all the states that used it. The key institution was the European Central Bank as the guardian and manager of the currency. From the outset, the technical difficulties of bringing into line economies with very different levels of performance were sidelined by the political imperative of driving toward ever closer European union.
To obviate this problem, strict rules included the requirement that eurozone state budget deficits relative to GDP should not exceed three percent and a country’s debt should not be greater than 60 percent of its GDP. However, from the outset, these rules were flouted. Founder member Belgium, for instance, had a debt ratio approaching 130 percent, but was allowed to join because this figure was deemed to be falling. France only hit the budget deficit target by counting national insurance contributions as income. Indeed the introduction of the euro, due in 1997, had been delayed because only three of the candidate countries, Denmark, Luxembourg and Ireland, actually hit these figures.
The euro has since survived economic collapse in Greece, Ireland, Spain and Portugal. The ECB has struggled, so far successfully, to cope with wildly diverse economic performances where workers for instance in Belgium are 78 percent more productive than in Greece. However, rising nationalism casts Brussels and it vision of continental unity as the villain and the, albeit widely-flouted, single currency rules, as oppressive interference in their financial plans. Italy is the most recent to try and break ranks.
Today Europeans value euro for its convenience. Tomorrow however, it may become, for some of them at least, the despised symbol of Brussels-led hegemony.
