Unmet expectations: 20 euros

Twenty years ago, on January 1, 2002, citizens of 12 European countries began using new euro banknotes and coins. A larger-than-real project, symbolizing an era when European leaders were bold enough to step into the unknown, has thus become a concrete reality.
This perfect transition was imagined in the 1970s, designed in the 1980s, and culminated in the efforts negotiated in the 1990s. Expectations were high. Euro supporters wanted the euro to bring economic and financial integration, policy convergence, political fusion, and global influence.
Twenty years later, it is difficult to avoid feeling disappointed with economic integration. An initial assessment of the impact of a single currency on trade found it to be just over 2%. According to a recent survey by the European Central Bank, the impact is probably 5%. It’s still small and isn’t worth the effort in itself. Two regions in Europe have an average of one-sixth of the trade if they are not in the same country. Borders are still quite important, as they are reluctant to unify history, language, networks, judicial systems, and regulations.
The story of financial services is more dramatic. In the first few years, banks often recklessly expanded their credit abroad until the euro crisis ten years ago caused a sharp setback behind the border. Regulators have told them to stop sharing liquidity with non-domestic subsidiaries, applying the famous saying that banks are global in life but national in death. Fragmentation continued.
The bold decision to launch a European banking alliance in June 2012 was a response. However, the implementation was only partial. Eurozone banks are currently under the supervision of the ECB, but bankruptcy cases are effectively in the hands of the state. Financial integration has recovered slightly, but momentum is weak. Pan-European banks can spread risk more broadly, but governments are reluctant to abandon their privileged relationship with their “own” banking system.
Policy convergence for best performance was intended to result from self-discipline, as well as the creation of fiscal policy rules and adjustment processes. However, many governments rejected further requests from Brussels because they gave up monetary policy autonomy. For a decade, credit growth and inflation diverged, with little concern except for then-ECB President Jean-Claude Trichet. When the euro crisis finally broke out, it caused the North and South EU member states to face each other head-on.
Since then, convergence has improved. Under coercion, the competitive gap narrowed. The ECB helped calm exit speculation in the euro area and made borrowers in all member states accessible to credits of similar prices. The response to the Covid-19 shock was very supportive with the support of the European Commission and the ECB. And the recovery program, which started in the summer of 2020, collapsed after many years of taboo.
There is currently a debate about how much reform the European macroeconomic policy system needs. Some argue that if the government follows the rules, the current arrangements will work. But, as I and a group of economists and lawyers recently argued, changes in the environment today mean that policy priorities cannot focus solely on fostering discipline in all Member States. increase.
Instead, long-term challenges such as high debt ratios, low interest rates, the potential for recurrent turmoil, and climate change are for coordinating monetary and fiscal policies, reforming fiscal rules, and working together to tackle shocks. Requires preparation. Encouragingly, Italy’s Prime Minister Mario Draghi and France’s President Emmanuel Macron supported such reforms in recent comments.
Europe’s long-standing goal of political agglomeration was expected to follow the monetary union. The late German central banker Hans Tietmeyer liked to quote Nicole Oresme, a medieval philosopher who said that money belongs to the community, not the prince. Euro supporters were a little confused and wanted a common currency to create a sense of community.
This did not happen directly. During the 1991-92 negotiations on the Maastricht Treaty, the government was to discuss the political union alongside the monetary union. However, many countries, including France, have rejected the federal blueprint. Citizens initially treated euro banknotes as a technique, not as a sign of affiliation. In addition, the new, predominantly Central and Eastern European member states that joined the EU in the mid-2000s did not share the post-national spirit of the founding father of the EU. The euro crisis confirmed that solidarity was still lacking.
However, the euro can still indirectly create community consciousness. So far, fear, not love, has prevented us from leaving the country, but in some respects the results are the same. Right-wing populist politicians such as Marine Le Pen in France and Matteo Salvini in Italy have eased criticism of the euro. Major politicians no longer want to bet on it.
Global influence was probably the most elusive of the four goals of the euro. Policy makers have consciously put it off for 20 years, and of course it would have been premature to promote an untested currency in place of the dollar.
But over time, the internationalization of the euro has become more important. Europe’s technological leads are old and their relative economic strength may be declining rapidly, but few countries can provide a stable world currency. China does not provide the necessary legal security and transparency, Japan is too inward, Switzerland and the United Kingdom are too small. With growing geopolitical tensions, China is pushing for a China-centric model of international affairs, US multilateral involvement is questionable, and the euro’s international status is not a trivial achievement.
Politicians sometimes make long-term investments. When I think about it later, the euro was one of them. Its founder’s predictions were often unobtrusive, but it was definitely a wise bet. After all, there are currently 19 member states in the euro area, and candidates are waiting at the door. — Project Syndicate


* Jean Pisani-Ferry, Senior Fellow of the Brussels-based think tank Bruegel and Senior Non-Resident Fellow of the Peterson Institute for International Economics, chairs Tommaso Padoa-Schioppa of the European University Institute.