The Euro was 35 years in the Making (So is its Mooted Collapse Really that Likely?)




Starting before Georges Pompidou and May 1968 — a time of much turbulence in France — and driven by a range of French political leaders —  Raymond Barre, Valéry Giscard d’Estaing, Jacques Delors Edouard Balladur, Jacques Chirac, François Mitterrand — the euro emerged in 1999 only after many advances and retreats.

French elites pushed hard for the creation of the Euro in 1999 (Credit Wikipedia)

French elites pushed hard for the creation of the Euro in 1999 (Credit Wikipedia)

Since then says the author of this piece it has faced many a night at the barricades.

Below is an unedited machine translation of a fascinating history of the euro seen from the French perspective, by Jean Quatremer, Brussels correspondent of France’s Liberation newspaper. The original French version is published here : April 25, 2014.

Do you know it took 35 years of debate and failed attempts to create the euro? The single currency is not suddenly output cap in 1991 with the signing of the Maastricht Treaty. Georges Pompidou, already had understood the importance of creating a stable currency at the continental scale, a project pursued by his successors, whether right or left. At a time when our politicians and economists compete approximations and untruths, here is a brief history of the history of the single currency.

1968: euro blooms in May.
The euro is the child of May 68, surprising as it may seem. The merry month of May brought the French franc in a period of turbulence which leads Georges Pompidou, the new President of the Republic, to devalue the franc in August 1969, and for the first time since 1958. Germans are taken by surprise: the tensions of the international monetary system become one of the major themes of the campaign which takes place at the same time in Germany. After the election of the new Bundestag, in the fall of 1969, Chancellor Willy Brandt, newly elected, decided for the first time since the creation of the mark, in 1948, leaving it temporarily float, which led to its re face other currencies.

The European Commission is concerned about the consequences of monetary pressure on the EU budget: France will she have to pay more because the franc depreciates its partners or will they have to fill the shortfall? Raymond Barre, then Commissioner for Economic Affairs, presents a “memorandum” in which he offers a greater convergence of economic policies and monetary policy coordination. The debate on economic and monetary union was launched.

Former French President Georges Pompidou (Credit Wikipedia)

Former French President Georges Pompidou (Credit Wikipedia)

1971: Richard Nixon knock out the single currency project
The first European Council of Heads of State and Government, meeting in The Hague on 1 st and 2 December 1969, requested that a plan be developed in stages “for the creation of an economic and monetary union “. A committee of senior officials and chaired by Pierre Werner, Prime Minister of Luxembourg, there splint and present its report in October 1970. Offers the single currency, which should be released in 1980, accompanied by a transfer economic and budgetary policies at European level and the creation of mechanisms of financial solidarity between Member States to combat structural and regional imbalances … The Heads of State and Government approved the “Werner Plan” in October 1972, but the suspension the dollar’s convertibility into gold, decided in August 1971 by Richard Nixon, and the 1973 oil shock leads states to react dispersed rising unemployment, currency instability and inflation sequence. European economies diverge more than ever. The Werner Report, too far ahead of his time, is buried.

1979, the oil kings are tripping monetary projects Europeans
In October 1977, Columbia Roy Jenkins, President of the Commission, called the Nine (the United Kingdom, Denmark and Ireland are members of the EEC since 1973) to “transfer monetary policy at European level” . The President of the French Republic, Valéry Giscard d’Estaing and German Chancellor Helmut Schmidt seize up the ball and offer in April 1978, the creation of the European Monetary System (EMS) to minimize variations between currencies to compel states to coordinate their economic policies which will ultimately lead to the creation of a single currency. London only refuse to participate in the exchange rate mechanism. But the second oil shock in 1979 will once again thwart the project, the Europeans preferring again everyone for himself. Evidence of these economic differences: it will be necessary between 1979 and 1983, seven realignments of exchange rates …

1988: the single currency on the rails
The French solitary stimulus 1981 severely weakened the franc. Beginning of 1983, François Mitterrand, the Head of State, must make a choice, under the anxious eyes of the new German chancellor, Helmut Kohl: isolationism, defended by Chevènement, or maintaining the EMS, the option advocated by Jacques Delors. Europe will be the country to avoid an adventure that could ruin it. In June 1984, at the Fontainebleau summit, Mitterrand managed to solve Europe’s fiscal crisis by granting Lady Thatcher, British Prime Minister since 1979, a discount on its contribution. During the same meeting, Helmut Kohl succeeded in imposing Jacques Delors as President of the Commission (the President of the Republic would have preferred Cheysson). He took office in January 1985.

Valéry Giscard d’Estaing 1978 (Credit Wikipedia)

Valéry Giscard d’Estaing 1978 (Credit Wikipedia)

The new President of the Commission decides to complete the single market for 1993 (which is ten years behind schedule) and, for this purpose, obtained in 1986, a new treaty, the Single European Act, which includes a chapter on “cooperation in economic and monetary matters.” A first. But it remains inadequate: the mark is more domineering and monetary independence from France is measured in minutes, those between a decision to increase rates by the Bundesbank of the Bank of France to follow … Especially , the constant currency fluctuations threaten the single market: the face of “competitive devaluation” of each other, the temptation is strong to introduce protectionist measures to protect its domestic market.

In January 1988, Edouard Balladur, Minister of Finance Jacques Chirac, submits to his European colleagues a memorandum calls for a single currency managed by a European Central Bank, an idea taken the leap by Helmut Kohl, despite the outcry of Bundesbank. In June 1988, in Hanover, the Twelve (Greece, Spain and Portugal joined the club) controls a report to a committee chaired by Delors and composed of central bankers. “I was hoping that together, Robin Leigh-Pemberton, the Governor of the Bank of England, and Karl Otto Pohl, president of the Bundesbank, prevent the emergence of a report that would give a dynamic EMU” , later wrote in his memoirs Margaret Thatcher to justify the green light, showing how it underestimates the “dynamic” community. In April 1989, the Committee reaches a unanimous agreement on a draft single currency: central bank independence and price stability are on the menu. But in June 1989, Kohl refuses to convene an Intergovernmental Conference (IGC) to immediately revise the treaties and implement the single currency has in his head elections of September 90 and sees not explain that the Germans will sacrificing the mark.

François Mitterrand1984 (Credit Wikipedia)

François Mitterrand1984 (Credit Wikipedia)

1989: the fall of the wall shakes the single currency
On 9 November 1989 the Berlin Wall collapsed. The single currency will she suffer the same fate? Kohl is increasingly reluctant to commit to a specific date to start negotiations, the German unification further complicating the situation of domestic policy. For its part, Mitterrand takes a dim view of the GDR back into the fold of the FRG and fears that Germany elects a “lonely road” which marks the return of tensions in Europe so he wants to anchor permanently to Europe. After several tense encounters with his French counterpart, Kohl finally agreed at the summit in Strasbourg in December 1989, an IGC to be launched in late 1990 to negotiate what became the Maastricht Treaty.

1991: a morning in Maastricht
Monday, December 9, Mitterrand and Kohl all take their breakfast before the opening of the Maastricht summit. A ritual. After a year of negotiations, the architecture of the future EMU was set to the smallest detail, the Bundesbank has largely imposed its views in exchange for giving up his precious mark: an independent central bank in charge of enforcing the “stability prices, “a total lack of financial solidarity, each country remains free of its economic and fiscal policy, no European budget can absorb external shocks,” convergence criteria “(public deficit under 3% debt Public less than 60% of long-term interest rates converged) to meet before entering the single currency, etc. .. Everyone is aware that EMU is flawed, far from the Werner Plan 1970 for which a currency without a state was unimaginable. But never mind, we will complete construction later.

It remains, in fact, a point to negotiate: the date of the changeover to the single currency. Much of the German political class objected to a fixed date is set: each must remain free to enter EMU. But Kohl agrees with Mitterrand for the single currency (it will take the euro in December 1995 name) is not indefinitely adjourned indefinitely, it takes automatic date for countries that meet the criteria . Mitterrand and Kohl proposes January 1999 accepted. That the Chancellor does not know is that the night his friend François dined with his Italian counterpart, Giulio Andreotti, with whom he has already agreed on that date … It will be endorsed by the Twelve to fury of the German monetary authorities. London, she will get an “opt out” allowing him to stay away.

1999: 2,999 balloons in the sky Brussels
December 31 in Brussels are definitively fixed parities between the euro and the currencies of the eleven countries qualified for EMU. 2999 balloons are released to celebrate the event. In 3000, he would have had to ask permission from the Belgian air traffic control … The next day, the euro appears to 1.1665 dollar, a currency already “strong”, and interest rates of the ECB (2.5 %) allow the euro area to breathe never, with national currencies, they were so low.

However, after the Treaty of Maastricht, little bet on the fact that it would emerge. Indeed, in 1992 and 1993, the European currencies are violently attacked by the markets following the Danish “no” to the Maastricht Treaty in June 1992. Pound sterling and the Italian read are ejected EMS and other currencies must devalue the franc … pass close to the disaster, and in August 1993, the EMS avoids the explosion that narrowly. Worse errors economic management of 94 and 95 years, with the chaotic early days of President Jacques Chirac, seem away more than ever the perspective of the single currency …

It is the Commission which will restart the machine in May 1995 with a “Green Paper” on the concrete steps of the changeover to the single currency (eg, on what date will be launched coins and banknotes). In September 1995, Germany responded by requiring states to sign a “rules” of the single currency to ensure that fiscal policy will continue to converge once the future euro in force. The negotiation of these two texts, often violent, lasts more than one year. It was not until December 1996 that the Fifteen (Austria, Finland and Sweden joined in January 1995) to reach an agreement, including financial penalties to be imposed in the States’ excessive deficit ‘, c’ is to say that do not meet the 3% limit.

From that moment, the Anglo-Saxon markets, including are persuaded that the single currency, which now has a name, will see the day: the interest of the public debt of European countries rates begin to converge (in lowering in unprecedented proportions) as and when the date of 1999 is approaching.

2000: Descent into hell
Friday 22 September 2000, the major central banks of the world (ECB, Federal Reserve, Bank of Japan, Bank of England) released their bazooka and intervene heavily in the foreign exchange market, selling the dollar and buying the euro to support a single currency that does not stop dripping. $ 1.17 in January 1999, she slipped to $ 0.84, prompting jeers of europhobes who see it as confirmation of their opposition to this “funny money” … It will however expect July 2002 for it to return to parity with the greenback, after having fallen to $ 0.82 October 16, 2002. I must say that the last six months, the euro notes and coins replaced national currencies the dead, which likely contributed to a reality in a purely electronic money until then. This time, the euro seems irreversible and markets believe the push to $ 1.60 in July 2008 … Candidates for the euro crowd at the door in January 2011, the area has ten- seven members (the Swedish referendum refuse to join the euro in 2003 and is readjusted Lithuania in 2007). Everything now seems to succeed him. Even the financial storm came from the United States, following the bursting of the subprime bubble, fades to European coasts: without the single currency, the mark would become a safe haven, which would have plunged and all other European currencies led to a violent crisis.

EUROZONE or How I learned to stop worrying and love economic collapse (Credit Flickr)

EUROZONE or How I learned to stop worrying and love economic collapse (Credit Flickr)

2010-2012: nights barricades

Thursday, October 28, 2010. Dinner of Heads of State and Government turns to boxing. Jean-Claude Trichet, ECB president since 2003, opposed the Franco-German compromise which provides that public debt may be restructured if the eurozone provides financial assistance to a country attacked by the markets. The reasoning of the couple Nicolas Sarkozy, Angela Merkel is simple: if the markets they may lose some of their claims are warned, they will put pressure on countries whose competitiveness is deteriorating. Trichet believes that we should not say the word “restructuring” as it may be to panic markets that could sell a vengeance debts of countries deemed most vulnerable for fear of losing it all: “You do appointment not reflect the seriousness of the situation ” , he says to Twenty Seven. Immediately jumped Nicolas Sarkozy: “You can not tell the Heads of State and Government who managed the crisis caused by the markets they are unconscious. You may speak to bankers, we are accountable to our citizens ” , he said. The facts will give reason to the ECB: a month later, Ireland must seek financial assistance from the euro area and in April 2011, it was the turn of Portugal. In October, at the continued deterioration of the situation in Greece, the Europeans will make the largest debt restructuring in history, private creditors being forced to give up 110 billion of Greek debt …

However, before that fateful European Council, the situation appeared stable. To save Athens from bankruptcy, the euro zone was granted in May 2010, a contribution of € 110 billion and, in the process, created the European Financial Stability Fund (EFSF, since replaced by the European Mechanism stability, MES) with initially of 440 billion euros (there is 750 billion today). After six months of hesitation, largely due to Angela Merkel, the euro area has recognized the need to establish a minimum of financial solidarity between its members as provided Pierre Werner in 1970 …

Learning slowly but states must have two years of trial and error to permanently stabilize the eurozone. It’s not even that late August 2012 Berlin permanently waives Athens expel eurozone. Meanwhile, much of the economic and fiscal policies has been transferred to the European level, thus giving rise to an economic government. Especially, the ECB finally broke with the rigid monetarist Bundesbank intervening in the market for public debt to support States attacked: in July 2012, Mario Draghi, Trichet’s successor, even threatening to intervene without limits, definitively calm jittery investors.

How did we get here? The sovereign debt crisis, which began in late 2009, could have been avoided if the Europeans had not thought that a currency could exist without a state. Once the euro effect, governments are disinterested deepening of the Union. The introduction of the single currency, unlike hoped for Hubert Vedrine, Foreign Minister Lionel Jospin, did not constitute a “federal shock.” Now immune to speculative attacks against their currencies and rich cash lent their markets to German rates, they have conducted economic and budgetary policies increasingly divergent. Clearly, everyone was home that he liked. If Germany conducted a rigorous policy to regain its competitiveness, Greece, Ireland, Portugal or Spain have lived on credit, while France left its public spending ordnance.

Adhere a greve geral! Alfama, Lisboa (Credit O.F.E Flickr)

Adhere a greve geral! Alfama, Lisboa (Credit O.F.E Flickr)

When the financial crisis erupted in the United States, 2007-2008, European states have had to borrow heavily to cope with the economic crisis, while others saw their real estate and banking sector collapse. And markets started to worry about their ability to repay. However, the euro area, when Greece was recognized in November 2009, it was divided by three its real deficit was slow to affirm its solidarity. In particular, Germany, the strongest “signature” has made it clear she was washing his hands of what would happen to the Greeks … As a result, everyone started to sell Greek debt and Irish and Portuguese, etc.. since the rebate was no longer certain.

In a panic, European leaders have to battle for two years and for many nights deal with markets returning tirelessly to assault the fortress euro. A worthy scion of May 68, the euro had its nights barricades. If the cracks were repaired, the euro area is still far from being a political federation will only markets that the euro is irreversible. The “United States of Europe” remain to be built.

 

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