The Euro: the Beginning of the End




As EU leaders loll in the sun the Euro lurches from crisis to collapse but there appears to be little sense of urgency in resolving the worst global financial crisis in 70 years .

José Manuel Barroso

EU Commission's José Manuel Barroso. Image Wikipedia

Could it be that Humpty Dumpty is now truly dead and broken and there is no way to put him back together again? There is no shortage of material out there forecasting the end of the euro and of the European project itself and here reprinted with permission of Open Democracy is one such article, written five years ago.  As it turns out the writer was more prescient than perhaps even he imagined possible.

On 5 June 2005 Gwyn Prins professor in the European Institute at the London School of Economics wrote: The “people-power” that triumphed in the French and Dutch referenda next spells doom for Europe’s single currency.

“This first week of June 2005 has declared itself to be the most important for Europe since November 1989. The referenda results in France (on 29 May) and the Netherlands (on 1 June) have turned out to be an even more fundamental turning-point in modern European affairs than my previous article in openDemocracy predicted. The centre of gravity of European politics has just shifted abruptly; I suspect irrevocably. A process has begun that could lead to the collapse of the European single currency as well as of the European constitution and the dreams of political union it embodied.

As the European Commission president, José Manuel Barroso’s economic adviser succinctly notes: people will not eventually wish to live in a roofless house – and will leave it.

“People power” is that special homemade explosive which people brew up as a last resort in democratically dysfunctional societies. It blew down the Berlin wall, mortally wounded the imposed Soviet federal state and has since swept kaleidoscopically through “rose” (Georgia) to “orange” (Ukraine) revolutions in the former Soviet space.

Now the Dutch results have brought people-power’s agenda-bending influence to western Europe. They demonstrate the degree to which the remorseless pursuit of the federal European state has eroded the bond of trust between rulers and ruled. The young people in these two countries displayed especially profound alienation from the “project”; a Dutch high-school poll among those too young to vote found 70% against the constitution.

In a crisis, the Dutch always turn west, to the sea. The profile of their vote in 2005 is more English than French, just as once William the Silent preferred Elizabeth to the Duc d’Anjou. The Dutch result is the most important defeat for a French grand projet to dominate European affairs since Trafalgar in 1805. It is not yet Waterloo, but Jacques Chirac appears to be a politically dead man walking while the mantle of Napoleon is contested between Nikolas Sarkozy and Dominique de Villepin.

A bitter fight now begins out in the open between irreconcilable French and English national interests. For these are two fundamentally different sorts of society; as Tom Kremer explains in his incisive new book The Missing Heart of Europe, England is the quintessentially independent, empirical, eccentric common-law based society, while the political culture of regicide France (precisely as Edmund Burke predicted) is concentric, over-determined and dirigiste. Each French democratic crisis stimulates a bout of constitution-writing. In the case of the European Union, the reflex was simply exported to the larger stage, where it has gone horribly wrong.

This gives Tony Blair his best chance for a place in posterity, if he is wise enough to accept the logic of the times and see that Britain could lead Europe – from the Atlantic to the Urals, from the Baltic to the Aegean – back to what will command general assent, namely a sustainable vision of a pan-continental customs union.

The European elites who granted the referenda have lost control of the terms of the referenda and of the licence to regulate future conversation with European publics. Any future new attempt to foist the federal project by stealth will put people onto the streets of The Hague and other continental capitals. The issue is now unstoppably, daily, increasingly the fifty years’ stifled rejection of ever-wider encroachment of the European project. The Brussels nomenklatura is still in denial.

The threads unravel

This remarkable week has put onto the agenda a development that was previously unthinkable but which may materialise rather quicker than the elites expect: the unpicking of the euro.

The referenda aftermath was highly revealing: while a statement from the German central bank attempted to reassure everyone by saying firmly that the dismantling of the euro was unthinkable, Stern reported that the German finance minister Hans Eichel had called a secret meeting to discuss this very issue.

Meanwhile, two Dutch lawyers have begun a class action against the Dutch government demanding the return of the 10% value of every Dutch person’s savings that was, they allege, stolen on vesting day – when, knowingly but secretly, the then government agreed to let the guilder enter the euro at too low a rate. The reason, to allow the southern European countries to enter the eurozone from the start, was deemed to be politically essential, although it never made any economic sense.

I would not be surprised if the next (Labour-led) Dutch coalition proposes to restore the guilder. And why not? The debauching of the Dutch economy has been fierce and flagrant. The financial markets had held back since its launch, expecting the next federal step, but are now speaking out, as is the Italian finance minister Roberto Maroni. The markets know that the European federal state, the necessary and logical accompaniment of a unitary currency with a European Central Bank and a single interest rate, will not happen. There are excellent reasons to pull back.

The sensible move would be to abolish the Frankfurt-based central bank as part of a cull of sacred cows and to return to the European Currency Unit (Ecu) system, which – unlike the Euro – was actually economically coherent. This arrangement, with the Ecu set as a weighted average of a basket of currencies, facilitated trading and provided stability in the single market. But national central banks set national exchange and interest rates to suit their own, unsurprisingly various and sometimes divergent, needs.

Fortunately it isn’t hard to unpick the Euro. National central banks still exist and only promissory notes, not bullion, have been sent from capitals to Frankfurt: so the ECB has no way to blackmail the Dutch (for example). The notes and coins are nationally labelled and can be deemed to be guilders or Marks or lira from repatriation day until the national paper is reprinted. (A Morgan Stanley briefing paper outlined this process some months ago.)

This would also reopen the door for the key geopolitical requirement that is required: namely German renunciation of the deal that Helmut Köhl made with Francois Mitterrand (exchanging French acquiescence in German reunification for abandonment of the Deutschmark). Surveys suggest that 60% of Germans favour restoring the D-mark.

A eurozone failure to do this will lead Europe into treacherous waters. As the pain that governments in northern Europe accepted for themselves to permit the euro to launch including in the southern European states, is shifted from north to south to ease the plight of the Dutch or German economies, the risk is that something cracks in Italy or Greece or Spain. But if the southern tier continues to be protected, could something break politically and culturally in Germany that is deeper even than the election upset in North Rhine-Westphalia? Don’t let’s go there.

The European Union was supposed to be the bulwark against the return of the shadows. Tortured by the unresolvable dilemma of the “one-size-fits-all” euro, it now threatens to be the opposite. And the Dutch, sensing dangers rising again to the east, have rung the fire-bell in the night. Loudly.

This article is published by Gwyn Prins, and openDemocracy.net under a Creative Commons licence.

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4 Responses to The Euro: the Beginning of the End

  1. Finn Skovgaard August 8, 2011 at 7:08 pm

    Back in 2005, I wrote something along the same lines. The oldest web archive I could find is from February 2006 on http://web.archive.org/web/20060206233707/http://www.skovgaard.org/europolitics/eumarket.htm .

  2. Lafayette August 9, 2011 at 6:55 am

    This “worst crisis in 70 years” is nothing but a “Tempest in a Teapot” so let’s not blow it out of proportion as regards its real menace.

    As for this article, it is just so much blather and not really worth commenting upon. The Euro is here to stay as a Reserve Currency, which Brits don’t seem to understand. And if they don’t want to join in, then they should at least refrain from denigrating the Euro.

    Britannia waves the rules …

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