The euro was, and remains, a terrible idea — that’s the consensus among British and American economists, anyway. From Martin Feldstein on the right to Mervyn King in the center and Paul Krugman and Joseph Stiglitz on the left, the conclusion is clear: Europe’s monetary union was a mistake and it should be dismantled.
As persuasive as these ideas may be at a time of rising populism — in Europe and abroad — this view does not take into account the public mood across the Continent, where the euro remains very popular indeed.
It’s easy for those living outside the eurozone to point the finger at high unemployment in Italy, Greece and Spain and blame it on the single currency “straitjacket.” Those living with the euro see it differently.
More than two-thirds of eurozone citizens — even those living in the most crisis-hit countries —want to keep the single currency. Take Greece. In the fall of 2005, just 46 percent of Greeks supported the euro. Ten years and two painful, humiliating near-Grexits later, the number climbed to 70 percent. Greeks and other Southern Europeans know the problems they face have mostly domestic roots. Leaving the euro, they feel, would only make matters worse.
Nearly everybody on both sides of the Atlantic agrees that if the eurozone is going to survive its next crisis, it will need some sort of joint fiscal capacity: eurobonds, a common budget, a ministry of finance for the currency area with appropriate democratic oversight.
The difference of opinion lies over whether such measures are politically feasible. In the U.S. and the U.K., scholars and pundits generally believe that the possibilities of Germany accepting a transfer union and France relinquishing its fiscal sovereignty are extremely low. Hence, they conclude, it is time to accept that the euro experiment has failed and start divorce procedures.
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Joseph Stiglitz, for example, argues that Greece could leave the eurozone with only minor disruptions, by adopting new “e-Greek euros” and implementing capital controls. In his book, “The Euro: How a Common Currency Threatens the Future of Europe,” he explains that an electronic currency would make it impossible for Greeks to smuggle their savings overseas or dodge taxes, and this would bring monetary sovereignty back to the Greek state.
What is worrying about Stiglitz’s proposal is that he has failed to specify whether the decision would follow a democratic process or whether an overhaul of this nature — essentially a mega Argentina-style corralito — would be force-fed. Given how widespread the distrust of national elites is in Mediterranean member countries of the euro, a decision like this enforced from above would most likely trigger social unrest. Capital controls in Greece have worked because the country has remained inside the eurozone; if exit were in sight, the situation would be very different.
What suggestions like Stiglitz’s fail to take into account is that Portugal, Spain, Greece and Italy fought hard to be in the rich and democratic eurozone club. They will not give it up so easily. To be sure, the euro has structural flaws that need fixing. But, even so, the currency has served as a pillar of stability throughout the crisis. The same can’t be said of national institutions.
It is important to remember that before the euro was introduced, most people in Southern Europe kept at least 30 percent of their assets in hard currency, sometimes overseas, out of fear of devaluation and the resulting loss of purchasing power. Few want to go back to that.
This is why left-wing parties like Syriza in Greece and Podemos in Spain — and even separatists in Catalonia — have refrained from calling to ditch the euro. The one exception is Beppe Grillo in Italy, but few believe that the comedian-turned-political-leader is serious about pulling his country out of the eurozone.
Similar calculations in other eurozone countries make most proposals for dismantling the eurozone unrealistic. The idea of creating two euros, one for Northern countries and one for the South, as suggested by the winners of the Lord Wolfson Prize, is not feasible. That’s because France is in the middle, and it will never enter into a union with its more-productive neighbors to the North, or dare to separate itself from Germany to lead the less-productive Southerners.
Nor will Germany leave the euro, as suggested by Stiglitz and King. No chancellor wants to go down in history as the one who killed the European project. As Merkel made clear during the recent crisis: If the euro fails, Europe fails. This is precisely why Alternative for Germany has morphed from an anti-euro into an anti-immigration party. There are very few votes to win by bashing the euro in Germany.
The same is true in France, as National Front leader Marine Le Pen has realized. She now advocates for a concerted dismantling of the euro (an unrealistic endeavor) and won’t push France to go it alone.
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The eurozone is not like North America, where the United States, Mexico and Canada do fine without a common currency. With the U.S. by far the strongest power of the three, trade there is mostly done in U.S. dollars.
In Europe, the balance of power is more distributed and since nobody wants to use the dollar in intra-European trade, a split up of the eurozone would mean going back to the 1980s “tyranny” of the German mark. This would in turn revive the ghost of the “German Problem.” That, not the euro, would be a threat for Europe.
Currencies, like languages, create a sense of community. And even traumatic experiences, like the recent eurozone crisis, can create bonds that transcend national borders. A far larger number of Europeans in the eurozone say they feel European than do those in countries outside the single currency.
And contrary to conventional wisdom, recent research shows that a majority of eurozone residents think there should be more cross-border solidarity within the currency union. This even holds true for citizens of a net contributor like Germany.
The euro did not create the national tensions we see in Europe today. It just brought them to the fore by exposing the Continent’s interdependencies. Take away the single currency and the bonds tying Europeans together will dwindle, as nationalism grows stronger.
Miguel Otero-Iglesias is senior analyst at the Elcano Royal Institute in Madrid.