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THE BIRTH AND DEATH OF THE EURO

The euro is more a political than an economic project. It is a political project using economic means that most economists believe are inherently unsuitable.

by Anthony Coughlan, Ireland

The political project is to help turn the European Union into a highly centralised Federal-style State under the political hegemony of Germany and France, with the other EU members grouped around them.

"We need this united Europe," said Spanish Premier Felipe Gonzalez on the eve of locking together the eurozone exchange rates in 1998. "We must never forget that the euro is an instrument of this project." Commission President Romano Prodi wrote at the same time: "The pillars of the nation state are the sword and the currency, and we changed that."

German Chancellor Gerhardt Schröder said in 1999: "The introduction of the euro is probably the most important integrating step since the beginning of the unification process. It is certain that the times of individual national efforts regarding employment policies, social and tax policies are definitely over. This will require to bury finally some erroneous ideas of national sovereigntyŠNational sovereignty in foreign and security policy will soon prove itself to be a product of the imagination."

FRANCE AND GERMANY - MIDWIVES TO THE EURO

The euro would not exist if Germany's Chancellor Helmut Kohl and France's President Francois Mitterand has not decided on it in the early 1990s. For them the euro was essentially a political scheme to reconcile France to Germany's sudden reunification. "I like Germany so much that I prefer two of them," France's President Charles de Gaulle said once, referring to the two States of divided Germany. Now Gorbachev was permitting German reunification virtually overnight. Mitterand tried but failed to talk him out of it. To reconcile a worried France to the prospect of a reunified German State, with 17 million extra Germans on her eastern border, Kohl agreed to abolish the Deutschemark, the great symbol of post-war Germany's economic achievement, and share with France the running of a new European currency.

In return France agreed to closer political union with France, a common EU foreign and security policy, and in due time an EU army with the French-German duo effectively commanding it. This was Monetary Union for Political Union in euro-jargon. Or put crudely, it was the Deutschemark in exchange for the Eurobomb! Germany was forbidden by the post-war treaties to have a nuclear weapon of her own. This way she could get her finger on a collective EU nuclear trigger. Germany and France would captain an EU world power together, as they could no longer hope to be world powers separately. As foretaste of the future they established that same year a Franco-German army brigade, with French and German officers jointly in command. It still exists as the nucleus of the coming EU army.

Naturally the citizens of the various European countries did not want to abolish their national currencies. In Denmark and Ireland the people had to be asked in referendums. In 1992 the Danes rejected the Maastricht Treaty, which was the legal basis for the euro. Their europhile Government then pushed it through by making them vote a second time, without making any changes to the treaty. In France Mitterand held a referendum on Maastricht, confident that it would easily go through. It was the votes of France's overseas territories that won him a narrow 51% majority and thereby helped to abolish the franc. The German people were wholly against abolishing the D-mark. Indeed recent opinion polls show that they would very much like to have it back again. Unfortunately their constitution does not permit referendums, so their eurofanatical political elite pressed ahead regardless. British public opinion forced John Major's Conservative Government to opt out of the euro. Sweden has no legal opt out from the euro, but its government has been unable politically to push it through. Most people do not know that the "common position" of the 15 EU Member States in their accession negotiations with the 10 new EU Members from Central, Eastern and Southern Europe has been that the newcomers must all agree to abolish their national currencies and adopt the euro in due time - even though Britain, Sweden and Denmark are keeping their currencies. There could be no clearer evidence of the EU's anti-democratic, imperialistic character. When the East Europeans were client states of the USSR during the Cold War, the Russians never told them that they must adopt the rouble!

WHY COUNTRIES NEED THEIR OWN CURRENCIES

It is not sentiment, but enlightened self-interest, that makes people want to hold on to their national currencies. It is democracy in other words, the desire for national independence and self-rule. All independent States have their own currencies. All currencies belong to independent States. Possession of its own currency enables a government to control the rate of interest, which is the domestic price of a currency, and with that the money supply and volume of credit in an economy, so that these serve the interests of its citizens. Or to control the foreign exchange rate, the price of a currency in terms of other currencies, which governs the terms on which a country conducts its foreign trade and which can be vital for its economic competitiveness.

These policies are now decided for the 12 Member States of the eurozone by the European Central Bank in Frankfurt - theoretically in the interests of the eurozone as a whole, in practice in the interests of Germany and France, who make up half the eurozone's population. Thus at present Germany needs low interest rates to encourage investment and reduce its nearly 5 million unemployed. The Republic of Ireland had an economic boom from 1993 to 2001. It needed higher interest rates to reduce inflation and hold back soaring prices, especially for houses. The interest rate that suits Germany does not suit Ireland, and vice versa. The EU Central Bank maintains the same interest rate across the eurozone for economies at different stages of the economic cycle, with different levels of productivity, different resource endowments and different degrees of exposure to economic shocks. The unsuitability of the ECB's one-size-fits-all interest rate regime is shown clearly by the contrast between Ireland and Germany. The welfare of their respective citizens requires different policies, but they must suffer the same one because the EU says so.

THE "BLACK HOLE" OF THE EUROZONE ECONOMY

These days the eurozone looks more and more like an economic Black Hole. Its core economies, Germany's and France's especially, are in poor shape. When the euro was established Germany insisted that the EU Central Bank be run like the German Bundesbank. It is independent of political conrol and its sole brief under the Maastricht Treaty is to keep prices stable and inflation under 2%. The eurozone economy can slump and job losses soar, but that is no concern of the ECB. Its deflationary policy mandate encourages recession instead of countering it. In addition the Germans insisted that the eurozone members be bound by the Growth and Stability Pact. This lays down that if countries run budget deficits over 3% of their national product a year because of falling taxes and rising unemployment, they must cut public spending further - which makes recession worse - or else face fines of billions of euros. The irony is that now Germany and France find themselves in breach of these rules, but one can be certain that the EU Commission will not try to bully them like it bullied Ireland and Portugal when they broke the rules.

The other irony is that when pushing for the euro Germany's rulers were so busy laying down rules for monetary discipline on the Italians and others that they took their eye off the ball and themselves joined the eurozone at too high an exchange rate. They exchanged the D-mark for the euro at a rate which burdened themselves with an implicitly overvalued currency. This makes it harder for their export industries to sell abroad, and easier for foreign firms to sell to Germany. That increases German unemployment. All this is due to the German political elite's love-affair with the euro.

When the euro was launched in 1999 the eurofanatics said confidently that it would soon become a strong world reserve currency like the dollar, as people switched from dollars into euros. Instead the opposite happened. The euro weakened against the dollar and British pound. Indeed in its first few years it was the euro's weakness this proved to be the one thing helping the competitiveness of the eurozone economy, Germany's and France's in particular.

Now this looks like changing. The next couple of years could put the eurozone under great strain. The Americans want to boost their economy by acting aggressively to let the dollar fall, so stimulating US exports to Europe and making EU exports to America less competitive. President Bush's re-election may well depend on doing this. The euro is now rising against the dollar, which is lessening the competitiveness of eurozone industry, but there is nothing individual eurozone countries can do about it, as they no longer have national currencies of their own. Another cause of strain is that China's currency, the yuan, is linked to the dollar, so that if the falling dollar makes US exports more competitive in eurozone and otherworld markets, it makes China's exports more competitive too.

The 87 billion dollars that President Bush has got the US Congress to authorise spending in Iraq will not be raised by taxing the American people. It will be created by turning the printing presses and adding to America's giant budget deficit. This will send the dollar lower, raise the euro and hit the eurozone economies.

Is it any wonder that the people of Sweden, one of the most educated and politically sophisticated in Europe, said No to jumping into the eurozone's economic Black Hole by 56% to 42% on a turnout of 81% of voters last September? Sweden's economy is doing very well outside the eurozone, as is Britain's and Denmark's.

WHY THE EURO CANNOT LAST

One can confidently predict that the euro will not last. The only question is how long will it continue. It might be gone in a couple of years, or it might last decades. But certain it is that as long as it lasts it will generate problems and tensions for the peoples of the eurozone.

"There is no example in history of a lasting monetary union that was not linked to one State," said Otmar Issing, German governor of the EU Central Bank. History is full of examples of abandoned currency unions. Where now is the USSR rouble, the Austro-Hungarian thaler, the Czechoslovak crown or Yugoslav dinar? Yet these currencies belonged to real, long-established States, multinational political unions that were also monetary unions and, more importantly, that were fiscal unions, bound together by common taxes and services, which is something the EU is not and never can be.

All sovereign States are fiscal as well as monetary unions. They have common taxes and public services throughout their territories. This means that their poorer regions and social classes pay on average lower taxes and receive more public services than their richer areas and classes. These expressions of national solidarity mean that there exist automatic resource transfers from richer regions within a country to compensate poorer regions to some extent for the drawback of their not having their own currency, interest rate and exchange rate, with which to balance their payments with the rest of their national economy. Despite this, poorer areas suffer from migration of capital and workers to richer areas within national economies, but less than what would happen in the absence of these fiscal transfers.

There is no such soldiarity in the EU monetary union, however, to induce the rich EU countries to compensate the poorer ones for loss of key economic powers. Of course some international solidarities exist between EU members, but nothing that compares to the solidarity that binds national States together and makes their citizens willing to pay taxes to a common government because it is THEIR government, which they willingly obey, with all the authority and legitimacy that derive from that.

EU monetary union is not a fiscal union. Taxes and public spending are overwhelmingly national in the EU, and likely to remain so. Brussels funds amount to a mere 1.3% of the EU's annual gross product, whereas national taxes and spending typically amount to 35% or more of national products. There is thus no realistic likelihood of the richer EU countries being willing to pay the vastly greater sums to Brussels in the name of a common "Europeanism" that would compensate the poorer EU countries for surrendering their ability to use a national exchange rate and interest policy to balance their national payments. The only thing countries threatened with such imbalance inside the eurozone can do about it, is to accept lower wages and profit rates compared to their competitors, or, if people are not willing to do that, to remain jobless at home or emigrate abroad. Neither the eurozone nor the wider EU has the solidarity that marks a nation or people. There is no EU "demos", no EU national community, no EU political "We, " with which citizens can identify and accept the authority of, and for which is some circumstances they are willing to die. Rather there are the EU's many nations and peoples.

The exchange rates of currencies are always fixed for political reasons and there is nothing more rigid than a monetary union. This is the fundamental reason why the euro is bound to generate tensions and antagonisms between the different members of the eurozone as long as it endures. The common interest rate and exchange rate that suit some some countries will not suit others, and people will gradually realise that their governments have surrendered key policies for advancing the national welfare because of their foolish uncritical europhilia.

For this reason most economists believe that the euro is bound to fail, although it could last years or even decades, as the rouble and thaler did, while generating policy conflicts and international tensions while it does last. In fact the euro is likely to make the national question, the right of nations and peoples to self-rule and self-determination, the principal issue of European politics for years to come. This will happen as countries which in the past possessed empires and which through them suppressed the national independence of others, discover the drawbacks of being ruled by foreigners, that is, by people they do not elect and who are not responsible to them.

______________

NOTE: Anthony Coughlan is an economist and Senior Lecturer Emeritus in Social Policy at Trinity College, Dublin. He is secretary of The National Platform,Ireland, a research and information group that is opposed to EU integration on democratic and internationalist grounds. He has been chairman of The European Alliance of EU-critical Movements(TEAM), which links together some 55 political party and non-party organisations in 20 different European countries in an information exchange on EU matters. He has been involved in a number of constitutional court cases in the Republic of Ireland seeking to establish fair referendum practices. He has written widely on EU affairs.


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