ZNet Commentary Euro-Ambitions January 06, 2002 By Boris Kagarlitsky
In Russia no one trusts banks or the rouble, and as a result, people usually conceal envelopes stuffed with hundred-dollar bills on shelves between books or in wardrobes between sheets.
>From this January, however, a new mysterious currency -- the euro -- will enter circulation. Maybe we should all convert all our savings into euros posthaste. Any discussion in Moscow about globalization or the world economy of late ends with someone in the room posing a question along these lines.
Russian nationalists who tend to dislike everything American are praising euro as an alternative. This tells you much about the nature of present day Russian nationalism which is not advocating national liberation but rather is telling us that being German vassals is better for us than being American clients.
On such occasions, I answer that I cannot vouch for the dollar, even less for the ruble and that the euro inspires still less confidence. Western Europe is embarking upon a grandiose experiment, and not just an economic one. French Le Monde Diplomatique writes that the euro is a currency "without soul or culture." That's a very French thing to say, really.
But, in fact, money is not only a means of payment (as political economists would have us believe), but also a cultural symbol of sorts. It should have a history. The euro, however, is the handiwork of bureaucrats and technocrats. Even the appearance of the notes attests to the lack of culture and impoverished imagination of its creators.
Each denomination is adorned with nondescript walls and doors. And there is not a single human face. European Union bureaucrats explained that any historical figure who is popular in one country may arouse negative emotions in neighboring countries. However, if these gentlemen are speaking of pan-European traditions and of shared history, then there should be some historical figures that embody this.
I, for one, do not understand who in Europe could be irritated by portraits of Aristotle, Leonardo da Vinci, Moliere, Mozart, Goethe or Einstein. Even Columbus can be O.K., though some of us on the Left will remind about his connection to colonialism. But therein lies the tragedy -- the eurocrats themselves probably can't remember a single one of these names.
Literature, philosophy, science, exploration and art have little if any, meaning for them. Out of the whole of European history, they have only learned about Napoleon and Bismarck, and even then only superficially. Moreover, the euro has another failing that is even more serious. The intention of the project's initiators was that a single currency would assist and facilitate European integration. In practice, it will likely have the opposite effect.
Financial capital in the US was able to exploit the specific advantages of the dollar. At the same time a national currency and a world-wide monetary unit, the dollar attracted investors; the surplus mass of dollars spread throughout the world, lowering the risk of inflation in the US, and in the process making the dollar even more attractive.
The European finance markets lacked such advantages. It is this, and not an imaginary lag by Europe in the development of advanced technologies, which explains the fact that the "new economy" has not developed as rapidly on the eastern side of the Atlantic. Stock prices rose, but not at the same rate as in the US.
For one thing, European companies could not build a financial pyramid since they did not have the financial resources to maintain it, and for another, it was impossible to expand the indebtedness of companies and the population to the same extent as in the US.
In principle, this could be regarded as a sign of healthier and more stable development, but from the point of view of the finance capital which held sway in Europe just as in America, it represented the main problem, the source of the weakness of the European economy.
The ambitious project of introducing a single currency, a project undertaken by the ruling classes of the European Union in the late 1990s, amounted to an attempt to even up the situation and attract speculative capital to the European financial markets.
Becoming a second or alternative world currency, the euro was meant to equalise the chances for competitors, thus infecting the European economy with all the maladies afflicting the US.
The population spontaneously sensed the threat and put up resistance, but the mainstream press and politicians, naturally, put this down to "conservatism" and the emotional or cultural attachment of Europeans to their old national currencies.
The project of the euro was as ambitious as it was adventurous, and most importantly, very badly thought-out. In the late 1990s the leadership of the European Union imposed common rules on all the member countries, rules that presumed a lowering of inflation to a uniform level of less than 3 per cent. What followed had the character of a one-off campaign, in the best Soviet tradition, with the countries rushing to report on time the results they had achieved.
The trouble was that in such circumstances, a uniform rate of inflation is impossible unless all the other parameters of economic development are equalised. Unless there is a policy of redistribution, in fact, market disproportions tend to increase.
The European Union adopted some redistributive measures, but the leaders, in line with their common neo-liberal ideology, put their stake on the elemental forces of the market. Paradoxically, it was this which undermined the chances of a stable future for the euro.
With the help of administrative and political pressure, inflation was lowered simultaneously in all the countries involved. Then it started growing with still greater force in those countries which had artificially reduced its level for the sake of entering the euro-zone.
Only now, this was no longer a problem of one or another particular country, but a destabilising factor for the entire European project. The euro was supposed to replace the national currencies on 1 January 2002. It would have been hard to imagine a less opportune moment. By the time the new currency was supposed to enter circulation, the world and European economies were already in recession.
This meant that supporting growth, or even mitigating the crisis, required a lowering of central bank interest rates. But this was something the European Union could not permit itself without at the same time dashing the hopes of turning the euro into a real rival to the dollar - that is, without defeating the whole purpose of the project. Still worse, the various countries entered the crisis in different condition.
Effective management of the situation required fundamentally different approaches in Germany, in Scandinavia, and in the countries of southern Europe. This, however, proved technically impossible. The single European Central Bank had been established precisely in order to implement a common policy.
Assembling ships into a single convoy requires the observance of definite rules. The whole convoy has to move at the speed of the slowest ship. If this rule is not followed, the remaining ships fall behind, and the convoy is dispersed.
The stability of a currency depends, at the end of the day, on the state of a country's economy. And the economies and levels of development of different EU member states differ considerably. While northern European member states, by and large, have few problems in achieving low inflation, Mediterranean countries have difficulty.
If the European Central Bank chooses to support a high exchange rate, the result will be that "backward" countries will find that they are no longer competitive (as the unfortunate example of Argentina shows). If, on the other hand, the decision is made to meet the "backward" countries halfway, then Italy, Portugal, Spain and Greece will export inflation to Germany and Finland.
The paradox was that the European Union could not allow itself to slow down and keep to a single rhythm of movement. The countries of southern Europe could not keep pace with Germany.
The transition to a single currency coincided with the process of integration into the European Union of the countries of the former Eastern Bloc; the Czech Republic, Poland and Hungary already stood in the first rank, expecting a final decision.
However, there was not the slightest hope that the newcomers would manage to cope in the long term with tasks which even countries that had been integrated into the European Union for many years were finding beyond them. The European "convoy" was becoming even more heterogeneous.
In the meantime, national governments are deprived of the usual monetary instruments to influence the economy and social development. At the European level there will inevitably be serious conflicts over monetary policy. These conflicts will not be easy to resolve as the interests of the member states are diametrically opposed.
In the spring of 2001 the European Central Bank again refused to lower its interest rates, so affirming its commitment to a strong euro - at any price. The trouble was that this price might well become the destruction of the common economic space, and ultimately, the collapse of the euro.
The sole hope for the European project was that the crisis would bring about a spontaneous fall in the price of the dollar, and inflation in the US. This, however, did not portend a happy future for the euro either. The European Central Bank would be able to lower interest rates and unleash inflation, thus slowing the convoy and allowing the laggards to catch up, but this would be very remote from the original ambitious plans of the European elites.
Instead of nearing their strategic goals, they would now have to concentrate exclusively on minimising the damage caused by their own past decisions.
Everything will end in some kind of bureaucratic, fudged solution that will make things worse for everyone. Inflation will be too high for the north and too low for the south.
The introduction of the new currency coincides with a world economic crisis. It would be hard to come up with a more inappropriate moment to launch such an ambitious project. Bad luck is not really the issue here. Technocrats simply live in their own little world and rarely think about how their projects will function in real life. The currency was supposed to unite but will no doubt lead to greater discord. In fact, that's usually the way with money.