You'll be happy to know that the European Central Bank is working on introducing new banknotes that are “even more beautiful” than those already in circulation. ECB President Christine Lagarde said this in her New Year's address this week to mark the 25th anniversary of the euro's founding.
She pointed out, with obvious satisfaction, that many Europeans may not even remember a time before the single currency. The glorious variety of banknotes that abounded in Europe at the time were not only far more aesthetically appealing than today's grossly homogenized banknotes, but they also held far more hope for the future and were even more economically viable. Perhaps this is not surprising, since it was also an impressive time. growth.
Don't worry, Ms. Lagarde said enthusiastically. The single currency continues to unite Europe, make it easier to work and do business, and ensure price stability.
These claims may be at least partially true. Indeed, euro membership has made it much more difficult or impossible for other countries to follow Britain's lead and leave the EU.
Pulling Britain out of Europe's bear hug, even for a country with its own currency, proved difficult and long-lasting. Imagine if economic disruption and disruption meant abandoning established means of exchange and rebuilding monetary sovereignty from scratch. In the case of Lehman, who uses steroids, the amount would be equivalent to that total.
Still, unity in prison is a somewhat strange concept.
It is also probably true that the euro has made doing business between euro area countries a little easier. Businesses and individuals no longer need to worry about currency risks and can plan their future accordingly. However, the significant efficiency gains that European industry had hoped for from pricing and financial strategies have not materialized.
Exaggerated claims about price stability also don't merit much scrutiny. Inflation rates across the euro area mask large fluctuations on the ground. For example, a year ago the inflation rate was 6.7% in Spain, 11.3% in Germany and 21.7% in Latvia.
Even now that general price increases have receded, the differences are extreme, from -0.7% in Belgium to 6.9% in Slovakia.
Despite 25 years of monetary union, the inflation experience across the euro area remains very different. When it comes to interest rates, what is appropriate for one country is still very likely to be inappropriate for another.
What former Bank of England governor Eddie George called Europe's “one-size-fits-all” monetary policy continues to struggle for economic legitimacy.
But the European Central Bank's action to ignore the nominal ban on debt monetization through the single currency would have already ended the game. The eurozone would have collapsed on the unforgiving rock of the European sovereign debt crisis of 2009-2012.
Without fiscal integration, a well-functioning banking union, and a centralized treasury function, a monetary union will not last long. Pushing for a single currency before there is political agreement to put these basic building blocks in place is always putting the cart before the horse.
Still, the existential threat of a decade ago is largely gone. With each passing crisis, Europe manages to move a little closer to what it needs, thereby ensuring the survival of the single currency. Political opposition to the further integration required evaporates in the face of the expected disruption of the alternatives.
Until the sovereign debt crisis, the Maastricht Treaty's “no bailout” clause was sacrosanct, but now the ECB takes over the sovereign debt market with impunity through its massive asset purchase program.
Similarly, the European Commission is moving its wagons on the original principles of a self-financing federation of sovereign states by borrowing directly from the market for its €800bn (£694bn) splurge on the NextGenerationEU economic recovery plan. .
This is, in effect, an early stage of fiscal integration. The European Union is inching towards the federalism our Founding Fathers always envisioned: a United States of Europe forged in crisis.
Despite the risk of provoking an almighty political backlash by forcing the pace of integration, the euro is working largely as intended. However, economic justifications have failed across the board.
Gross per capita income in the euro area grew relatively strongly in the early years of the single currency, but this was true virtually everywhere, and again even within the euro area performance was far from uniform.
In Italy's case, for example, joining the single currency has coincided with a period of unprecedented economic stagnation, with the country hardly wealthier on a per capita basis than it was a quarter of a century ago.
A similar but more widespread stagnation has taken hold across the euro area since the financial crisis. However, in the case of rapid catch-up growth in relatively low-income member states, the tally would have been even worse.
This was not how it was supposed to be. Instead, the single currency was intended to reinvigorate Europe after much of the hardening of the 1990s. Unfortunately, that was not the case, as it was based on an economic misunderstanding.
Although free trade clearly does not require the abolition of national currencies, it is nevertheless important for the European high command to deepen the single market through harmonization of standards, while at the same time avoiding the continuation of the sudden changes in national competitiveness that accompany currency adjustments. Tolerating seemed perverted.
Europe's perfect conception of free trade has always been at odds with the traditional neo-Keynesian view that currency readjustment is a natural, market-driven way of redressing competitive imbalances between economies without imposing unnecessary hardship. Was.
The euro area's rigidity, which denied it such flexibility, soon manifested itself in severe fiscal austerity and a deep recession caused by the European debt crisis.
According to an analysis by the European Center for International Political Economy, the per capita GDP of the 14 EU member states (together accounting for 89% of EU GDP) was lower in 2021 than when the euro was launched.
In 2000, France and Germany were as rich as the 36th and 31st US states, but 21 years later, France's per capita GDP was lower than the 48th poorest US state, Arkansas. Meanwhile, Germany's GDP per capita has fallen and it is no longer as wealthy as Arkansas. Oklahoma, the 38th state in the United States.
Monetary union cannot be blamed entirely for Europe's long-term weakness. After all, Britain hasn't improved much. But 25 years after its creation, the euro has failed to deliver on its economic promises.
What was once an acute, life-threatening disease has now become a chronic, long-term disease with no immediate prospect of cure.
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