The euro at 20 | New Europe
The majority of Europeans over 30 certainly remember January 1, 2002, when the first new euro banknotes were withdrawn from ATMs across the continent, replacing their marks, francs, lire, pesetas, gulden. I have a special memory of the introduction of the euro 20 years ago.
On New Year’s Day 2002, I interviewed Romano Prodi, then President of the European Commission, in Vienna. He praised the design of Austrian Robert Kalina’s banknotes. When I objected and mentioned that there were no personalities, only abstract architectural elements, he said that Goethe, Dante or Molière could have been represented, “but then the discussion would have started as to who would be on the highest banknotes “.
Prodi also stressed that the euro will strengthen the European economy and do a lot to develop a European identity.
This prediction came true. Hardly any other element is associated with the “European Union” as much as with the common currency. For younger people, in particular, the euro, which is the official currency in 19 European countries, as well as six other European nations, is now part of their daily life.
In the EU’s single market, the euro has facilitated and encouraged cross-border trade. It has also proven itself internationally by quickly becoming the most important reserve currency in the world after the dollar.
However, the first sufferings endured by the single currency were severe. The German government, in particular, knew that a majority of Germans wanted to keep the Deutsche Mark. Helmut Kohl, the German Chancellor at the time, saw the common currency as an opportunity for EU members to develop further together.
At the insistence of Germany, a ceiling on the new annual debt (3%) and on the total debt (60% of the GDP) had already been introduced and included in the “Stability and Growth Pact”. But when countries like Germany and France violated those demands, sanctions were not imposed – as expected. This encouraged small countries to take on debt that they could not afford.
The euro has been accused of triggering price hikes. In fact, inflation rates were higher before the euro replaced national currencies. But in some areas, like restaurants, the euro saw noticeable price hikes soon after its introduction.
American experts in particular had not given the euro a long future without a common fiscal policy with harmonized tax rates. Indeed, current account imbalances, triggered by inflation caused by excessive debt, quickly led to major problems in the euro area. The GIISP countries (Greece, Italy, Ireland, Spain and Portugal) were the most affected. Greece, in particular, had been admitted to the euro area on the basis of falsified economic statistics. The threat of national bankruptcy in 2010, which could have meant the end of the euro, could only be avoided with significant financial assistance and drastic austerity plans for Greece.
In 2012, the former President of the European Central Bank, and now Italian Prime Minister, Mario Draghi, succeeded in repelling attacks on the euro by financial speculators by promising to buy back bonds of EU members. without limits, if necessary. With the words “do whatever it takes”, Draghi saved the euro.
Since then, opponents of the euro, who have always warned against a “debt union”, in which countries with a balanced budget should come to the aid of sinners in deficit, have seen their fears confirmed. Recently, the European Central Bank has come under increasing criticism for keeping interest rates low, despite higher inflation, which has devalued savings deposits.
With billions in aid to stimulate the economy affected by the pandemic, the EU has moved further away from the stability criteria. Germany’s new government has announced that it will not forget the countries hard hit by the pandemic when it comes to helping Covid. German Finance Minister Christian Lindner, who had previously always ruled out a debt union, now shows a willingness to compromise because Germany also has a responsibility for the political stability of the EU as a whole and the cohesion of the eurozone. In addition, the European Central Bank is currently studying the possibility of a “digital euro” in addition to cash.
The single currency’s performance can be seen as more or less positive. Other EU countries like Poland and Croatia are considering joining the single currency. On the occasion of its 20th anniversary, the overall assessment is that the euro has survived all crises and has contributed significantly to the stability of the EU.