The partisans of an orderly dismantling of the euro
The movement is originally German. In July 2012, 160 German academic economists did their bit to strengthen a campaign started before the Constitutional Court in Karlsruhe against the policies implemented to save the euro. One year earlier, in July 2011, a book announcing the end of the Euro adventure was published, with the following sub-title: ‘How the monetary union destroys the foundations of our lives’.
We could quote several other French and Italian books, but we could certainly not omit Portugal’s 2013 best-seller, ‘Why we should leave the Euro?’, from the economist João Ferreira do Amaral. In his view, Portugal’s capitulation before the European Commission in 1992 can be compared to the country’s capitulation before Spain in 1581. A German economist even wrote that the European Commission was ready to recruit mercenaries to shoot Greeks demonstrating against austerity!
Why repetitive devaluations are illusory
The first mistake of these economists is to forget that, since 15th August 1971, there are no more fixed exchange rates. As a consequence, a country can only devalue its currency if markets are willing to let it do so. If tomorrow European countries wanted to devalue the Euro against the Chinese Yuan, the billions of dollars held by the People’s Bank of China would prove an insurmountable obstacle.
The second mistake consists in telling the Italians that Italy would be the only country to devalue, and similarly for the French or the Portuguese, all of them would then recover some price-competitiveness against trade partners, who by definition would not react. But if everyone devalues, there is no devaluation! This idea brings to mind a proposal by a singer who suggested in 2003 going back to the old thermometer Réaumur, in order to diminish the degrees and hence fight the heat wave!
The third mistake consists in telling lies about the wonders of devaluation. Analysing international trade shows that the imported items used in exported products reduce to close to nothing the effects arising from a devaluation of national added value. Furthermore, devaluation is not a way to foster an industry able to compete with Samsung or Lenovo. The misfortunes of Nokia and Blackberry perfectly illustrate this.
Finally, there is a fourth mistake often made by French eurosceptic economists, and relating to the differences between Eurozone members. In the words of Alberto Bagnai, a Professor in economics at the Università Gabriele d’Annunzio de Chieti-Pesca, the differences between European countries are too important to allow for sharing a common currency. He backs his argument with Nobel-winning Canadian economist Robert Mundell’s Optimal Currency Area theory. But this argument fails to acknowledge the fact that internal differences within European countries are higher than the difference between European countries’ averages. Earning €1,500 in Paris or Milan does not provide the same standard of living as in Brioude or Chieti.
Hence, if we abandoned the euro to return to national currencies, following a purist interpretation of the Optimal Currency Area theory, we would have to create a Lombard Lira, a Sardinian Lira, a Parisian Franc, a Bearn Franc, all of which would thrill companies’ accountants and favour their development. Indeed, Robert Mundell was thinking of creating an Eastern dollar and a Western dollar in his first article in 1961.
These objections seem to us more appropriate than those purely focusing on the cost of returning to national currencies, particularly for Euro-denominated debt. As Sylvie Goulard writes it in her punchy latest book entitled ‘Europe: love or separate rooms?’: ‘the prohibitive cost of divorce does not make for a happy marriage.’ (p.28)
The right answer
Today, Robert Mundell, who lives partly in Italy, does not favour dismantling the Euro. ‘To save Europe, there has to be a move in the direction of shared Government’, he declared in The Telegraph on 25th August 2011. This is what Elie Cohen wrote in her 1996 book ‘The hexagonal temptation’: ‘The primary purpose of Maastricht was not to solve some technical problem linked to the development of private finance, but to make another step towards political integration thanks to the instrumentalisation of economic constraints’ (p.336), and a few pages later, ‘Contrary to what some argue, one cannot go to sleep as a Frenchman and wake up as a European after a few institutional dealings and by the cumulative effect of redistributed public policies. It would take a concrete expression of popular consent.’
This is partly what European citizens will be entitled to do on 25th May 2014. And this will be the most appropriate way to commemorate the first Century of the most atrocious of our civil wars.
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