‘THE EURO’S LOST PROMISE,’ by David Marsh writing an Op-Ed piece in the N. Y. Times.

In Uncategorized on May 18, 2010 at 13:00


The Euro’s Lost Promise


Published: May 17, 2010


THE dream of monetary union across Europe has turned into a nightmare. Led by France and Germany, European countries have decided to spend colossal sums of taxpayers’ money they cannot afford to heal mounting internal disparities they cannot conceal to shore up an edifice many believe cannot stand. On Monday, that skepticism briefly pulled the value of the euro down to a four-year low against the dollar.

A little over a week ago, European Union leaders approved a rescue package worth 750 billion euros (nearly $1 trillion) for weaker members like Greece, Portugal and Spain, backed by the International Monetary Fund and the American government. The present crisis extends well beyond its immediate causes: bad decisions in Athens, lack of European leadership and a poor economy. These are but the latest twists in a drama that began more than two decades ago.

The underlying story of how 16 diverse European currencies were fused into the euro combines the contorted fortunes of two powerful German politicians who sought to tame Europe’s past and shape its future, along with a French president who wished to fasten economic shackles around the might of a reunified Germany. Ultimately, too, it is the story of how the Old Continent struggled to break free from the uncertain political and economic embrace of the United States.

The pivotal moment in the formation of Europe’s monetary union came in December 1991 at a meeting in Maastricht in the southern Netherlands. Two years after the fall of the Berlin Wall, European leaders set a political path toward a Europe-wide currency — a holy grail that had been pursued since the Roman Empire. The new money would complete the European program of liberalized cross-border trade, promote the old dream of political unity, rival the dollar as an international reserve currency and — the most complicated objective — prevent an enlarged Germany’s domination of Europe by bringing its currency under European control. The mighty Deutsche mark needed to be cast into the furnace of European unity and forged into the euro.

In the vanguard of the effort was none other than Chancellor Helmut Kohl, the man who had driven German reunification with miraculous speed. He knew he had to enshrine the larger Germany in a new European order to ease its neighbors’ fears. The euro would be the monetary equivalent of the ugly yet necessary military compact between NATO and the Warsaw Pact that supervised East and West Germany after World War II.

To his credit, just before the Maastricht meeting, Chancellor Kohl noted that a monetary union without a corresponding political union would be “a castle in the air.” His remark echoed the concerns of the Bundesbank, his country’s statutorily independent central bank, that unless it involved greater political and economic anti-inflationary discipline and solidarity among weaker and stronger states, a monetary union would be doomed.

Of course, the Bundesbank was also reluctant to cede its mastery of European monetary affairs to a new European Central Bank. And ordinary Germans were not eager to give up the mark, the guarantor of their prosperity.

Yet Mr. Kohl fought for the monetary union, and the euro started on schedule, three months after he was voted out of office. (Eleven countries adopted the currency on Jan. 1, 1999; five more, including Greece, joined later.)

Mr. Kohl’s partner in redrawing the contours of Europe was President François Mitterrand of France, who provided Mr. Kohl with the political incentive to create the monetary union, arguing that unified Germany had to participate in deeper European integration. Mr. Kohl agreed, but egged on by the Bundesbank applied conditions that to this day remain deeply irksome to France — principally that the new currency had to be run by a European Central Bank that would be at least as independent as the Bundesbank.


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