With idealism lost, has the euro become Europe’s purgatory?

Romano Prodi, as president of the European Commission, viewed the public launch of the euro in January 2002 as presaging a glorious future for Europe. A future where non-members like Sweden, Denmark and even the UK would be clamouring to join. A vista of closer political union in the EU, of reformed economies and of insatiable public support.

“The success of the euro,” he declared, “tells us that there is a demand for a strong and united Europe.”

Prodi’s comments also highlighted the political origins of the single currency. Its economic rationale was always debatable. But as a tool to stimulate additional European political integration it seemed like an ideal fit. High public support would drive unprecedented political action. The euro was to be the tail wagging the integration dog.

Yet the reality is that over the last two decades the idealism of Europe’s great single currency project has slowly, but perceptibly – crisis after crisis – faded away.

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What’s left is like a road to perdition for finance ministers. An uninviting place that resembles many a Catholic childhood: a little bit of faith, a lot of make believe and the need for somebody to be in constant repentance.

The events of the past month highlight that the euro is now beginning to erode support for the wider European integration process

There was no accompanying leap forward politically since 2002, no great pooling of sovereignty which was to underpin the single currency.

There was nothing much at all. Just the usual political rhetoric – from every eurozone member and from the EU institutions – about solidarity and progress.

Fiscal rules

Eurozone politicians failed to use the benign economic climate pre-2008 to reform. Fiscal rules were bent for larger member states, and the credibility of the entire system was compromised from the very beginning. Funny, but I don’t remember the French, the Germans or the Italians complaining then.

The multiple economic crises of the last decade were also wasted. The eurozone needed a complete banking union to keep states safe from their large banks, more integrated capital markets to enable businesses to access finance and EU-level supports to help struggling member states.

What it actually got (after years of bitchy eurozone catfights) was a lot of new fiscal rules and EU-led bailouts stigmatised by the worst kind of conditional solidarity.

What these political failings have resulted in is a eurozone that is unsustainable. The level of political trust is now so low that any sort of meaningful fiscal or political union is unthinkable. Coronabonds won’t save Europe, they would simply finish off the euro.

Recent European Council and eurogroup decisions highlight that not even a global pandemic can alter this destructive path. In the place of concrete actions are the usual (but now more lofty post-coronavirus aspirations) for trillion euro recovery funds and expanded EU budgets. In reality it’s just bigger loans creating even more gigantic problems in the years ahead.

French political visionary Jean Monnet, like much of the recent French response to the crisis, was completely wrong. The Europe the euro zone needs will not be “forged in crisis”. Rather it may be destroyed by one.

Financial supervision

But even worse than that, the events of the past month highlight that the euro is now beginning to erode support for the wider European integration process. The Italians – big, proud and saddled with high public debt – will not tolerate Greek-style decades of outside financial supervision. Nor should they. It’s a ridiculous, and ultimately futile, way to manage a currency union of sovereign nation states. Brussels is literally handing Italy on a plate to Salvini and his populist brothers.

And while it’s easy to paint the Dutch (and their silent German, Austrian and Finnish backers) as being cold-hearted northerners looking after their own self-interest, that is to miss the point. Because the eurozone’s political failures are common to all its members regardless of geography or ideology.

Every eurozone member is partially responsible for the wicker-style currency structures now standing uncertainly against the coronavirus gale. Every eurogroup fudge, every can kicked down the road is now coming home to roost.

Rather than tear itself apart on issues like coronabonds, the eurozone needs to allow the member states to breathe fiscally, to take responsibility back to national capitals

Everybody knows it can’t go on like this, but nobody seems to have the courage to acknowledge all that has gone wrong, and all that needs to change. It’s like the euro is exhibiting a strange Stockholm Syndrome-style hold on all parties involved.

But perhaps the biggest failing of eurozone politicians (aided by the EU institutions and their add-ons) is to present the future of the euro as one where it must integrate further or face fragmentation. This binary choice is more than a little intellectually dishonest, and deliberately ignores the example of the most successful monetary union in the world – the United States of America.

Preening overlord

Rather than tear itself apart on issues like coronabonds, the eurozone needs to allow the member states to breathe fiscally, to take responsibility back to national capitals, and to combat the populist rhetoric portraying Brussels as the preening overlord. Only then will Europe have a real chance at furthering more grandiose notions of fiscal and political union.

The euro is the ultimate symbol of the Brussels integration machine. But Prodi was the one dreaming. Rather than leading to a golden age the euro has become Europe’s purgatory. A place of repentance for all those past political sins.

It is “better to reign in hell, than serve in heaven”, wrote British poet John Milton. And the euro may already be our paradise lost.