Where would we be without Europe?

October 7, 2008

ECB headquarters in Frankfurt/Alex GrimmIf the financial crisis looks bad, I for one am thinking it might have been even worse — in the euro zone at least — had European countries not decided to pool their economies together by launching the single European currency.

I covered Europe in the 1980s from Belgium and Luxembourg when the idea of a single currency was still the pipe dream of a few old men who back in the 1950s had been inspired by the idea of a united Europe emerging from the rubble of World War Two.

Then in the 1990s,  I was based in Paris when France and Germany, the powerhouse duo of European integration, struggled to align  their economies in preparation for European monetary union. In a smaller version of what is happening now, huge volumes of money washed around Europe’s financial system, as currency dealers bet that the governments of Europe would never be able to pull it off. 

The spending restraints needed to knock economies into shape were hugely unpopular, yet governments — mindful of the competitive devaluations of previous decades — stuck to them in the hope of better days ahead. I remember then Bank of France governor Jean-Claude Trichet patiently explaining to journalists the need for monetary union, so that individual countries were no longer vulnerable to a run on their currencies that would force up interest rates to suffocating levels.

ECB President Jean-Claude Trichet and Luxembourg Prime Minister Jean-Claude Juncker/Alex GrimmThe launch of the euro in 1999 was one of the very rare triumphs of politics over markets.

Looking at what is happening now, the early visionaries of European integration seem remarkably prescient. Or put more directly: If there were no European Central Bank, how many more Icelands would we have inside the euro zone?

Of course, this picture may be too rosy. Europe has struggled to form a coordinated response, as Paul Taylor says in this analysis.  “Since the  credit crunch swept into Europe from the United States last month,” he writes, “European countries have gone their separate ways in rescuing distressed banks, guaranteeing some or all deposits and suspending practices like short-selling shares.”

So am I being over-optimistic in thinking that the euro is one of the few bedrocks that we have right now, for which we have to thank those who conceived and gave birth to it in the 20th century? What would have happened had there been no single currency? And how well will that bedrock withstand the challenges today?



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you have got to be kidding? for a start off if the UK had joined we would have had even lower interest rates and even higher lending and a bigger bubble than we seem to have at the moment, just check Ireland.

Seems from you CV you have gone native.

Posted by sean | Report as abusive

Yes, Madam, you are being over-optimistic. Far from being a bedrock the Euro is more like quicksand. When crisis hits the member countries face reality and move to save themselves.
The euro will collapse eventually, and the sooner the better for the prosperity of European people as opposed to European politicians.

Posted by David Lonsdale | Report as abusive

This column is insane. Are you that deluded?

The euro and the EU are doomed.

Posted by Sere | Report as abusive

” I remember then Bank of France governor Jean-Claude Trichet patiently explaining to journalists the need for monetary union, so that individual countries were no longer vulnerable to a run on their currencies that would force up interest rates to suffocating levels.”

From what I can tell, I suppose, like you, all the other hacks just sat there absorbing his pearls of wisdom.

It is crystal clear that you are way out of your depth. You haven’t the slightest clue as to what a single-currency entails. The fourth estate? Ha ha.

Posted by John Archer | Report as abusive

What ARE you smoking lady? I suggest you detox. The Euro and the appalling structures put in place to protect this otherwise chocolate currency are hugely to blame for the viciousness of the crisis this side of the pond. Go and lie down in a dark room until you feel better.

Posted by George EDwards | Report as abusive

In answer to your comments:

Sean, you say “Seems from your CV you have gone native.” No, I left Paris, spent four years in India, and now live in London and work in Canary Wharf.

David, can you explain how you see individual European countries prospering in the face of competition from China and India with billion-plus populations and huge internal markets of their own?

Sere, why do you think the EU and the euro are doomed?

John, you write, “From what I can tell, I suppose, like you, all the other hacks just sat there absorbing his (Trichet’s) pearls of wisdom.” No. We used to make a point of talking to economists and traders in London, Frankfurt and Paris, and — time-differences permitting — in the United States — to seek as broad a view as possible. Those in London were consistently more negative about the chances of the euro ever seeing the light of day.

George – What am I smoking? Marlboro

So can we go back to the question? How would individual countries in Europe have fared had they not agreed to pool their economies in an internal market big enough to compete with the economies of Asia and the United States; and how would individual euro-zone members have fared in the financial crisis without the ECB?

Posted by Myra MacDonald | Report as abusive

Actually I tried to post a comment yesterday but it didn’t work. My feeling is that it is remarkable such a question has only generated average anti-single currency comments with little relevance to what was suggested in the article.

The single currency was an opportunity for countries to exercize some much needed discipline, yet at the same time one has to observe that it hasn’t been as much the straight jacket as many detractors claim. Some countries went on running quite unhealthy deficits and have been consistently claiming more leeway to be even more irresponsible. Since it is governments who decide in the end resort, they acted to prevent the levying of fines for non-compliance which had originally been agreed.

In the current crisis (which we can see affects countries whether or not in the Eurozone, so that answers the claim that the Euro is to blame), even after nearly ten years of monetary union the first implulse of several countries has been to go it alone, and even then, neither the ECB nor the Commission have seen it necessary to sanction them. Obviously the culture of cooperation has still some way to go or rather the crisis has to get even worse for governments to see the virtues of cooperation.

Posted by Paul Vallet | Report as abusive