The folly of the single European currency

 

The euro hit the streets on the 1st January 2002 as a currency in the form of notes and coins. There was a transition period of a year during which both old currencies and the euro were accepted as legal tender. 11 of the 15 EU member states have committed to the euro (all except the UK, Denmark, Sweden and Greece). 289 million people live in those 11 countries and each and every one of them was affected.

 

The euro is the height of arrogance shown by politicians in Europe. Put simply, the benefits of lower exchange and business costs and more equal pricing across the continent are never ever worth the fundamental risks of a collapse in the European monetary systems. You see the euro will replace not supplement national currencies, and there is no built-in 'back door' to allow countries to move out of the euro zone in the case of problems. And the problems are inevitable- you cannot impose an organized currency policy on an unorganized world and expect it to be successful over an extended period of time. The ultimate irony with the euro is that is designed to generate economic and political stability whereas all it will really do in the long run is the opposite and create massive instability. Fixed exchange rates have never worked, and they certainly don't work in the complex 21st century.

 

The euro planners set down economic benchmarks (called convergence criteria) that the member states had to meet to be included (Greece failed to achieve them). But these criteria are dynamic and not static and have to live through an entire economic cycle and have that cycle play itself out in the same way at the same time in each of the participant countries for the euro to remain stable. The euro was expected to stay stable against the US dollar, but instead fell 10% in the first two months of its life in 1999. It hasn't exactly outperformed the US dollars since, despite concerted central bank intervention. Currency speculators must be rubbing their hands together in glee- they will make many billions from the euro's collapse and fair play to them- markets are more efficient than institutions and they are simply correcting the follies of the politicians involved.

 

In another attempt to create a stability and conformance that can never exist in the modern world, the Stability and Growth Pact was created to punish participants that do not toe the collective line. They can be punished by penalties of up to 0.5% of economic growth for failure to comply. That's right- the wealth of people and businesses is materially punished because politicians haven't the discipline.

 

The arguments against the euro is for me nothing to do with nationalism- the pound is a recognized and trusted medium of exchange that works and people do not question. The same cannot be said for the euro.

 

Even businesses in countries such as Belgium (home of the European Commission) and Germany (home of the European Central Bank) do not always transact in the euro. My company opened a euro account in January 1999 when the currency became legal albeit in cheque and money transfer formats only. And since then, despite the fact that every invoice we send out has our euro account details on it, we have received less than 1% of all transactions in the euro- a few dozen payments at most.

 

The euro is an unnecessary revolution that no-one but a few arrogant eurocrats wants. And its collapse has the potential to blow Europe apart. It is too much risk for too little return. The sensible people will keep their savings in US dollars. Most will not. They will suffer, and complain, the most. But with its collapse will go socialism- people will no longer tolerate governments interfering with their money- the most important thing that people have.

 

Never before has the saying 'if it ain't broke, don't fix it' been so true. Somewhere along the line, the eurocrats forgot that currencies are just a means to an end, and not an end in themselves.

 

 

Author: Simon Buckingham

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