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The End (of the Euro) is Nigh

With Greece now just over a fortnight away from default, this could very well spell the beginning of the end for the Euro as we know it.

Cillian Doyle

DID THE DRAMATIC headline catch your eye? Well, if you’re reading this, then I suppose it did. But dramatic headlines aside, the prospect that the euro, in its current form, could soon become consigned to the scrapheap of history has become strikingly real. And yet somehow, I see no real debate or discussion about this in the Irish media, and – believe me – I’ve been looking. My great worry is that if we fail to prepare for this politically then we might as will prepare to fail economically. But let’s back up for a minute.

Some years ago, I remember coming across a quote by Jorg Haider, the late leader of Austria’s quasi fascist Freedom Party, in which he described the recently minted euro as ‘the new Esperanto money’. I often thought this was a rather prescient remark and one that managed to capture the reckless naivety of the euro project.

Esperanto was an attempt to create one European language, one that would foster peace and do away with the competing national languages of Europe. But it was doomed from the outset. In the absence of a central political authority implementing this, who was going to learn a language that barely anyone spoke? So instead of becoming the lingua franca of Europe, all Esperanto did was become one minor language amongst many.

So what relevance does this story hold for the euro today? Well, it now seems likely that the euro could go from being the financial lingua franca of Europe to just one European currency amongst many. This might seem like a large claim, so please – read on.

The Ghost of Currency Unions Past

A multi-country currency such as the euro, with a single monetary policy but without a political union, was always going to be a recipe for disaster. The proof is in the historical pudding. No currency union has ever survived without a political union. History is replete with examples of this, whether it was: the Scandinavian currency union, the Habsburg Empire of Austria-Hungry, Czechoslovakia, Yugoslavia or the Soviet Union. The curtain may have fallen on all of these currency unions within different contexts, but the one factor common to them all is that once the central political authority gave way, so too did the currency union.

So what lessons can be learned for the euro today? Well, we can see the array of options that were initially open to us, how these have evolved, and consequently how they have narrowed:

  1. Was the move toward a full political union (an undesirable option for many, myself included)
  2. Was more piecemeal crisis resolution (pretend and extend vs debt forgiveness) although this was never going to address the structural problems
  3. Was the departure (whether orderly or chaotic) of one or more countries from the euro, and a radical restructuring of the currency in its current form.

The window of opportunity for option (1) has now passed. There is little desire for further European integration, we need only look to the large volume of Eurosceptic parties elected in the recent European parliament elections for evidence of this. Option (2) initially seemed the most likely scenario, but the utter failure of austerity, coupled with the refusal to countenance debt forgiveness, means that if IMF/Eurogroup cannot compromise or break Syriza’s resolve, then Syriza could end up breaking the currency union. At which point option (3) comes into play.

A boon to growth or economic Armageddon?

Some argue that the dissolution of the euro in its current form could be orderly, as in the case of Czechoslovakia, whilst some think it would be chaotic like the Habsburg Empire, Yugoslavia and the Soviet Union. Some argue (present company included) that devolving macro-economic policy back down to the national level would be a serious boon to both growth and democracy, whilst others say it could be start of economic Armageddon.

Scaremongering aside, yes there would be hardship in the beginning, but faced with more stagnation and decline in the long-run, the short-term pain would be worth the long-term gain.

What’s more, it would seem doubtful that we would see a return to 19 or so separate currencies. In the event of collapse, it’s probable that what will emerge is a kind of ‘euro mark II’, with a number of countries grouped around Germany, whilst some of the peripheral countries introduce a parallel currency to run alongside the euro whilst trying to arrange an orderly exit.

The face of Grexit

If Greece leaves the euro there are a number of things we can expect to see. First off, capital flight will take place from the peripheral countries (Ireland, Spain, Portugal and Italy) as investors and wealthy individuals, spooked by the risk that these countries could be next in line for an exit, transfer their money into what is perceived as the safe centre – ie, Germany.

This will necessitate capital management techniques being introduced by the peripheral countries, if they are to stop a run on their banks. Thus banks will have to close temporarily, internet banking websites will have to go black, and the authorities will have to stop people at the airports/ferry ports from trying to smuggle hard cash over their borders.

But it wouldn’t have to be as a chaotic as all of this might sound. In the event of Greece leaving the euro, the plan is to initiate a parallel (electronic) currency, which would bring about an orderly withdrawal. This is for reasons of both cost effectiveness (not having print paper/mint coins) and for expedience (an electronic currency could be circulated rapidly). For any of the nerds out there, who might be interested in what this would look like, click here. Irish policy makers should also take note!

The last waltz

The euro’s faulty architecture and draconian laws flowed from the pernicious neoliberal ideology that modern capitalist economies are self-stabilising systems, rather than crisis prone entities which require continuous intervention. Back in March I wrote that we would know the fate of Syriza and the euro before the July. This day next week the deadly game of brinksmanship will likely reach its denouement. This is the day when the next meeting of the Euro Summit is scheduled to take place.

If Greece is to remain within the fold, and the euro is to stagger on, then a further crippling austerity package (or some kind of debt forgiveness) will have to be agreed by this date. This is in order to give the Greek and German parliaments the requisite time to ratify any agreement, so that Greece can meet the next tranche of IMF payments in July and August (totalling 6.7 billion) and go on financing any deficits and further interest repayments in the near future.

However, if no agreement can be reached then there will be a rupture, which would surely mark the beginning of a great historical discontinuity. A Greek departure from the euro would be both the harbinger of a new era for Europe – and the closing of a Greek tragedy.

Cillian Doyle is an economist and activist.

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Cillian Doyle

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