Foresight: the Euro Crisis, as seen from a decade ago and more

20 June 2011

Foresight: the Euro Crisis, as seen from a decade ago and more

On the eve of the introduction of Euro notes and coins in 2001 Ewout Irrgang, a young economist and SP activist who would later become the party’s financial spokesman in the Dutch national parliament, was interviewed by the SP monthly, the Tribune: 'The introduction of the Euro is no small thing,’ he said. ‘We are dealing with the biggest monetary experiment in world history. Twelve extremely varied economies will go over, in one fell swoop, to the same currency.’

For years the SP had resisted the Euro’s introduction. Longstanding party leader Jan Marijnissen had this to say about the plan for a single currency on 1st January, 1997:

With the loss of our guilder we are losing more than folklore. We are losing our say in the area of monetary policy, and everything which depends on that. With the Euro in place, the Guilder would be gone and our control of monetary policy would disappear in the direction of the European Central Bank in Frankfurt.

The transfer of monetary power to the European Union cannot be interpreted otherwise than as giving up an important part of national sovereignty. As a former president of the Dutch national bank, M.W. Holtrop said in 1963, "Money is an attribute of sovereignty. If a country gives up its currency, it loses a little of itself.”

The Europe of 1997 is not a country, it is not a nation with which people can identify, a place where they feel themselves to be understood. They have nothing really to do with it, whether or not political leaders decide that we will have a monetary union from 1999 and a single currency from 2002. Europe is only a geographical concept, an abstraction in fact. There is no European people, no European language, no European culture.

Ewout Irrgang further examined the motives for the Euro’s introduction in the interview in De Tribune.

Introduction of the Euro means not only that we will be paying with the same currency, but also that there will be a single monetary policy. There is a single European central bank, which from Lapland to Sicily will operate the same rate of interest. The rate of interest is the principal means whereby the economic temperature is regulated. If the economy is going badly, you lower the interest rate so that the motor can run a little faster. If there’s a threat of overheating, you raise interest rates to cool it down. In all of these extremely different economies the stove will be stoked to the same level of heat and the temperature will be determined undemocratically and adjusted to the situation in the biggest countries, Germany, France and Italy. That will create irrevocable problems, problems which will be scarcely solvable.”

Seven years later, Irrgang’s dire predictions were borne out as the banks dragged the whole of Europe into an unprecedented economic crisis, with soaring budget deficits as one of its consequences. Mediterranean member states were the worst hit. Because they have clung to the strong Euro, their exports have slumped. They are no longer able to conduct their own monetary policy and can therefore not devalue their currencies. Falling exports mean lower economic growth and thus reduced government revenues. Governments struggling with budget deficits fell further into debt, encouraged by the low interest rates which were a result of the Euro.

Two years after the credit crisis the governments of the countries with the biggest deficits are unable any longer to meet their payments and are subject to the whims of the financial markets. Banks are dumping their Greek and Portuguese binds en masse and interest rates, once so low, are suddenly rocketing. “The Euro is in danger,” said German Chancellor Angela Merkel in 2010 as matters in Greece were getting out of hand. Via various routes hundreds of millions in loans then found their way to Greece and other countries with payment problems, so that they could continue to pay their creditors. These creditors, who had earned huge amounts from the high risk premiums, were in this way protected. It would not be they, but the general public throughout Europe who would be forking out for the costs in the event of non-payment.

The Euro, which was supposed to enforce the unification of Europe, appears in 2011 instead to be a source of division. The economies of the different European countries have diverged so far from each other that the ECB has the almost impossible task of introducing policies tailored to the needs of each of them. The Netherlands National Bank calls this, tactfully, a ‘major divergence of competitive positions’, but it would do better to note that unification of countries in Europe cannot be enforced by means of a common currency.

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