Tag Archives: euro

The Euro’s Failure: Never And Nowhere A Monetary Phenomenon

Would probably wish he had a dollar for every time someone uses his quote – Milton Friedman

Frances Coppola published a piece on the Euro’s failure and the ECB’s irrelevance a few days ago (aptly titled, “The ECB is irrelevant and the Euro is a failure”). I generally think it’s a really good read, but I have a problem with it.

When people criticize the Euro, they often say that either institutional deficiencies (i.e. no fiscal union/central government) or nationalism (sometimes misleadingly called ‘cultural differences’, of which the US, too, has plenty) make it impossible to for the Euro to work. I think that’s treating the symptom, not the cause. Cutting out the Euro is not going to cure Europe’s problems.

Coppola makes these two points (institutions & nationalism) as well, and also criticizes the austerity measures imposed across the continent in an attempt to ‘save’ the Eurozone:

We [Europeans] do not have a single language, we still cannot agree where our boundaries should fall and national interests always trump “European” politics. You can’t overturn tribal and cultural identities that go back thousands of years at the stroke of a few politicians’ pens…

…There is no sense of being “in this together”. On the contrary, there is political and social divergence; a sense of superiority from those countries that – for now – are doing well, and growing anger among the populations of those countries that are introducing painful and damaging austerity measures to create the illusion of economic convergence…

Economic convergence is an impossible dream while there is no political or fiscal union…

The Euro is a failed experiment. We should not waste any more effort trying to make it work. It is time to consign it to the dust of history.

Now, I’m right there with you about the apparent lack of cohesion in Europe. A lot of people have a hard time seeing why they should help out their neighbor if he or she doesn’t happen to have the same passport as they do. I also absolutely agree that the European institutions we have aren’t nearly powerful enough to play the role they’d need to play to make a unified currency work.

But why would you, then, say that the Euro is the problem? It seems to me that the problem isn’t a unified currency per se. Without such strong nationalist feelings and within a better institutional framework, the Euro might well work. It’d be very hard to make a consistent argument against the Euro as such, regardless of the institutional and ‘cultural’ environment it’s in (at least without also making one against the Dollar as such).

I see the failure of the Euro as a symptom of a much deeper problem. It’s a symptom of deeply rooted nationalism across Europe. Without that, we could probably have stronger European institutions, and a fair shot at a unified currency. We also probably wouldn’t have seen as much austerity, but then that was nothing but power politics to being with.

I see the failure of the Euro as an indication that we’re not ‘All Europeans now’. That was a nice idea while it lasted, up until the Eurozone crisis, but apparently not true. Which greatly annoys me, because I like to think of myself as a European (actually, I like to think of myself as a cosmopolitanist, and someone who doesn’t really care about nationality, but it’s even harder to rally people around that).

Where am I going with this? Well, if the Euro’s failure is merely the symptom of a deeper issue, then getting rid of the Euro won’t really solve anything. Sure, there would be economic benefits from not having it right now, given the weak institutions and strong nationalism we’re facing.

But it wouldn’t change anything about the fact that many Europeans don’t actually care much about Europe – they care about Germany, England, France, whatever. People attach a great deal of weight to the absolutely random fact that they were born within a certain set of lines on a map and not another. Personally, I find that absolutely ridiculous.

Alright, I can accept that in the short run, we can’t change the fact that people like to be ridiculous, and thus the Euro may be a bad idea now. In the famous Long Run however, I think we’d do well to address the issue of nationalism. And I’m not sure abandoning the Euro now would set the right precedent here, because that’d signal to generations to come that a unified Europe is doomed to fail. It isn’t. But we need to change the way people think about themselves to make it work, and that’s a big change to have to make.

So if we’re going to talk about dissolving the Euro, please don’t say it’s the unified currency as such that is the problem. This is really about nationalism making something like the Euro impossible right now. We have to keep in mind that we’ll be stuck with that nationalism even after the Euro’s gone. That’s the real problem we’ll have to deal with. Nationalism, it seems to me, is never and nowhere a monetary phenomenon.