BERLIN - We now have to rescue whatever is left to rescue of the euro, at any price. And as the crisis continues, one thing is abundantly clear: a decade ago, when the currency was introduced, we were way too gullible.
Here are 10 reason why the euro was a mistake. Some of them – superficially at least – seem fairly obvious. Some were aired, and discarded, in the various public and private debates that took place in the 1990s. Other aspects were simply overlooked at the outset, even by currency’s most ardent opponents.
1. No conflict resolution mechanism In its first decade, Europe’s economic integration was uniquely successful. At their summits, leaders divvied up profits. That dynamic changed with the euro crisis: now they had to share burdens -- something no one was prepared for, either institutionally or mentally. This, in turn, has led to squabbling among nations at a level that hasn’t been seen since 1957, when the Rome Treaties were signed.
2. No rallying points With the exception of soccer and the Eurovision Song Contest, there’s nothing around which Europeans rally as a whole – no regional TV stations or newspapers, and certainly no common language. During the win-win period, this wasn’t much of a problem. But as soon as the euro crisis broke out, a bad-mouthing “us vs. them” attitude quickly took hold. Even if the crisis itself doesn’t tear the European Union apart, the basic rallying point problem remains.
3. Language barriers Why were institutions such as Germany’s central bank, or the EU Commission not made aware during the last decade of the extent of the problems in Greece and Portugal? Because experts depended on the Greek and Portuguese governments for whatever information they were getting. Not knowing the languages meant they couldn’t independently read Greek and other newspapers, which would have made the situation abundantly clear. This is an ongoing problem.
4. Trust Experiences so far are sobering. A case in point is the fudged figures on which Greece’s entry into the zone were based in the first place. And there are no signs presently of any behavior anywhere that would warrant greater trust.
5. Control It’s not just about the four big economies: Germany, France, Italy and Spain, which together represent three-fourths of the euro zone’s economic performance. The crisis has made it clear that even a country like Greece, which barely contributes 2% of the currency zone’s GDP, is “system relevant.” That means that with the possible exception of tiny Malta, any euro country has the potential to blow up the whole system. A related problem is shifting power – usually seen as German dominance, but it can also mean weaker members taking the others hostage.
6. Shared-value deficit Europe wouldn’t necessarily need many shared values to function as a free trade tone. But as a currency union, survival depends on shared economic and political values. Some northern European governments seriously thought the euro would bring a German-style “culture of stability” to southern European countries. But it’s become clear that France, Italy, Spain and Greece continue to perceive the European Central Bank as an opportunity. Seen objectively, that may not be wrong, but it contradicts the deeply-held German conviction forged out of negative experience that an independent central bank is the only guarantee against governments piling up debt that is then “inflated away” by printing more money.
7. The missing European mind Differences in mentality between nations would not pose a problem if at the very least there were people in national government and the joint institutions who had cast off national thinking. But there are no “true Europeans” either among politicians, technocrats or among the members of the supposedly independent European Central Bank.
8. Interest rates When the euro was first introduced, even skeptics thought the economic situations among currency union members would soon balance out. Not so, and that’s a problem because there’s only one key interest rate. It’s too high for some countries, too low for others. The results are unnecessarily long declines in economic activity and high rates of job loss on the one hand, and high inflation -- and in some cases bubbles (think: real estate markets in Spain and Ireland) – on the other.
9. Lack of mobility People have to be mobile in a currency union – ready to move to wherever the good jobs are so that areas where jobs are plentiful balance areas where they aren’t. With time, Europeans are becoming more mobile, as the number of Spaniards migrating to Germany shows. But there’s still a long way to go.
10. No real will to enforce the rules Despite all the difficulties, the currency union could work if governments would exert “peer pressure” on each other. But the fathers of the currency union overestimated their own political caste. Greece, Italy, Germany – all have treated Maastricht Treaty rules like non-binding suggestions and no amount of EU Commission “Blue Letters” have done any good in changing that. None of the violators, in other words, have been punished.
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