The 19-nation eurozone has been in a sustained crisis since the crash of 2008. The less competitive southern European states – Italy, Spain, and Greece – have experienced high unemployment and anemic economic growth. In sharp contrast, more competitive northern Eurozone nations such as Germany and the Netherlands have experienced solid growth since the Great Recession. EU-driven governmental austerity in the south has not done enough to improve those economies but has polarized their electorates.
As is too-often the case when the EU confronts a crisis, the only cure on offer is “more Europe.” France’s new president, Emmanuel Macron, has proposed the creation of a eurozone budget, overseen by a eurozone Finance Minister, who would then distribute the funds collected to the weakest member economies. This individual would have oversight over all 19 eurozone national budgets, determining the appropriate level of bailout to be accorded each nation. To finance the venture, he recommends that the European Central Bank (ECB) create, then sell, eurobonds. In the process, the office would create a new form of national dependence, replete with opportunities for “political” rather than economic decision-making. Having lost control of their currency, such nations would thereby lose control of their budgets and taxing policies. Control would be centralized in Brussels and Frankfurt.
This is a far cry from the onetime economic union promoted as a means of economic flourishing.
The EU single market was launched in 1993. The goal was the free movement of people, goods, services, and capital within what are now 28 member states. One of the chief architects of the European Union was former EU Commission President Jacques Delors. In the early 1980s, the French socialist proposed moving from a common market to a common currency, to a common government. He viewed the process as a step-by-step means of creating a United States of Europe. The common currency, the euro, followed in 1999, when the EU formed a monetary union among 11 member states. The eurozone today includes 19-members, home to 375 million people with a GDP of $12 trillion – the size of China’s GDP. Ironically, it is this “currency union” which may now threaten the EU’s future.
Why the euro was created
There are three reasons the euro was created. First, the euro aimed to deepen the EU single market by eliminating currency exchanges across national borders and creating transnational cost competition. Second, the currency was meant to become an alternative reserve currency to the U.S. dollar. And third, it could set the stage for a unified European superstate. Ironically, the euro has rapidly become a central cause of EU disunity.
While the euro is a single currency, the eurozone has 19 separate parliaments, heads of state, and national banks. These national banks, plus the European Central Bank (ECB), make up the Eurosystem – akin to the U.S. Federal Reserve system. As you might imagine, one airplane and 19 pilots is a formula for an economic plane crash. The significant challenge of one currency spanning 19 governments is that elected officials are disconnected from fiscal accountability. Additionally, the lost mission of national banks is to impose monetary discipline. The third failure here is that 19 nations have lost a vital economic tool, the appreciation or depreciation of their currency.
Currencies, by their nature, connect nations to global economic feedback and hold government leaders to account for the impact of their decisions. Nineteen EU nations have lost this vital tie to global economic forces. Today, Germany has four percent unemployment and 68 percent debt-to-GDP ratio, while Greece – using the same currency – has 22 percent unemployment and 170 percent debt-to-GDP ratio.