Twenty years ago, on January 1, 2002, the citizens of 12 European countries began using the new banknotes and coins of the euro. A gigantic project – emblematic of a time when European leaders were bold enough to step into the unknown – thus became a tangible reality.
This seamless transition capped a mission that was envisioned in the 1970s, designed in the 1980s, and negotiated in the 1990s. Expectations were high: proponents of the euro expected it to deliver economic and financial integration, policy convergence, political amalgamation and global influence.
Two decades later, it’s hard not to be disillusioned by economic integration. Early assessments of the single currency’s trade impact found it to be just over 2 percent. A recent investigation of European Central Bank he estimates the effect to be perhaps 5 percent. It is still too little and, in itself, not worth the effort. Two regions within Europe trade with each other six times less on average if they are not in the same country. Due to history, languages, networks, judicial systems, and reluctance to unify regulations, national borders still matter a great deal.
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The story of financial services is more dramatic. In the early years, banks extended credit abroad, often recklessly, until the euro crisis ten years ago triggered a precipitous retreat behind national borders. Regulators, citing the famous aphorism that banks are global in life but national in death, told them to stop sharing liquidity with non-national subsidiaries. What came next was a fragmentation.
The bold decision to launch a European banking union in June 2012 was in response to this. But implementation has been only partial: while eurozone banks are today supervised by the ECB, de facto insolvencies end up in national hands. Financial integration has somewhat recovered, but momentum is weak. While pan-European banks could diversify risk on a broader scale, national governments continue to refuse to relinquish privileged relationships with “their” banking systems.
19 countries use the Euro: The European currency is used from Germany to Cyprus, and several Eastern European nations knock on the door to be admitted
On the other hand, it was thought that the convergence of policies towards the best performing actors would result from self-discipline, as well as from fiscal policy rules and the creation of coordination processes. But, having relinquished autonomy over monetary policy, many governments rejected further demands from Brussels.
For ten years, credit growth and inflation rates diverged, but few other than then ECB President Jean-Claude Trichet cared too much. When it finally broke euro crisis, it directly confronted the northern and southern member countries of the EU.
Convergence has improved since then. Under pressure, the competitiveness gaps have narrowed. The ECB has helped quell speculation of leaving the eurozone by ensuring that debtors in all member states have access to equally priced credit. The response to the Covid-19 crisis was remarkably cooperative, with support from the European Commission and the ECB. And the recovery program launched in the summer of 2020 broke long-standing taboos.
turbulence factors
Today there is a debate about how much more reform the Europe’s macroeconomic policy system. According to some, the current agreements would work well if governments respected the rules. But, as I recently argued with a group of economists and lawyers, today’s altered environment means that policy priorities cannot simply focus on fostering discipline in each Member State.
Rather, high debt ratios, low interest rates, the likelihood of recurring turbulence, and secular challenges such as climate change call for coordinated monetary and fiscal policies, reformed fiscal rules, and provisions to deal with crises in a timely manner. joint. It is encouraging that Italian Prime Minister Mario Draghi and French President Emmanuel Macron have endorsed those reforms in a recent comment.
Political agglomeration, a long-standing European goal, was expected to follow currency union. Hans Tiet-meyer, the late German central banker, liked to quote Nicolas Oresme, a medieval philosopher who said that money belongs to the community and not to the prince. Proponents of the euro hoped, perhaps confusedly, that a common currency would create a sense of community.
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This did not happen directly. During the 1991-92 negotiations on the Maastricht Treaty, governments were supposed to discuss political union alongside monetary union. But many countries, starting with France, they rejected the federal models. Citizens initially treated euro banknotes as a technicality, not as a sign of belonging. Likewise, the new member states, essentially from Central and Eastern Europe, that joined the EU in the mid-2000s did not share the post-national philosophy of the founding fathers of the Union. The euro crisis confirmed that solidarity was still scarce.
But the euro can still indirectly create a sense of community. While fear, not love, has so far kept countries from abandoning it, in some ways the result is the same. Far-right populist politicians like Marine Le Pen in France and Matteo Salvini in Italy have toned down their criticism of the euro. No major politician wants to continue betting against the euro.
Global influence is perhaps the most elusive of the four goals of the euro. Policymakers consciously put it on the back burner for two decades, and rightly so: It would have been premature to promote an untested currency as an alternative to the dollar.
a global player
However, over time, the internationalization of the euro has gained importance. Europe’s technological leadership is over, and its relative economic power is fading fast, but few, if any, countries can provide a stable global currency. China does not offer the required legal certainty and transparency, Japan looks too inward, and Switzerland and the UK are too small. At a time when geopolitical tensions are on the rise, when China promotes a Sinocentric model of international relations, and when America’s multilateral commitment is in doubt, the international status of the euro is no trivial achievement.
Politicians sometimes make long-term investments. In hindsight, the euro was one of them. While its founders’ predictions often went too far, it was probably a smart bet. After all, the eurozone now has 19 members and there are candidates waiting at the door. And it is not small thing.
JEAN PISANI-FERRY
© PROJECT SYNDICATE
PARIS
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