At the Financial Times Gyorgy Matolcsy, governor of the Hungarian National Bank, says it’s time to create an “escape mechanism” for the euro:
The time has come to seek a way out of the euro trap. There is a harmful dogma that the euro was the “normal†next step towards unifying western Europe. But the common European currency was not normal at all, because almost none of the preconditions were met.
Two decades after the euro’s launch, most of the necessary pillars of a successful global currency — a common state, a budget covering at least 15-20 per cent of the eurozone’s total gross domestic product, a eurozone finance minister and a ministry to go with the post — are still missing.
We rarely admit the real roots of the ill-advised decision to create the common currency: it was a French snare. As Germany unified, François Mitterrand, then French president, feared growing German power and believed convincing the country to give up its Deutschemark would be enough to avoid a German Europe. The chancellor of the time, Helmut Kohl, gave in and considered the euro the ultimate price for a unified Germany.
They were both wrong. We now have a European Germany, not a German Europe, and the euro was unÂable to prevent the emergence of another strong German power.
But the Germans also fell into the trap of the “too good to be true†euro. The inclusion of southern European economies in the eurozone led to an exchange rate that was weak enough to allow the Germans to become the strongest global export machine in the EU. This windfall opportunity made them complacent. They neglected to upgrade their infrastructure or to invest enough in future industries. They missed the digital revolution, miscalculated the emergence of China and failed to build pan-European global companies. At the same time, companies like Allianz, Deutsche Bank and Bayer launched fruitless efforts to conquer Wall Street and the US.
Most eurozone countries fared better before the euro than they did with it. According to analysis by the Centre for European Policy, there have been few winners and many losers in the first two decades of the euro.
I was in Europe when the euro was being debated and it was quite clear that the Germans saw the euro as a means of getting out from under the thumb of the dollar by providing an alternative to the dollar. That has not developed as they’d hope. But you don’t need a European currency to have a common currency. As things have actually developed the Europeans could have achieved the goals of the euro simply by adopting the dollar as a common currency.
What has happened is that, because of the construction of the euro and German policy, the Germans are able to have an export-driven economy without limits. If the countries of Europe each had their own hard currencies, Germany would either need to curb its exports or buy more goods from the countries of southern Europe. It’s not all Portugal, Greece, Italy, and Spain’s fault. It’s a structural problem.
