Saturday, November 9, 2013

Breaking up the euro to end the crisis? Not unless you break EU.

Recently there was a discussion on the Debating Europe website, following suggestions of a number of prominent economists like Roger Bootle, that a solution to the euro-zone's crisis would be to break it in two currencies.

Such move would be a radical one and not without its costs or dangers. Breaking up the euro can have the same effects to the countries leaving the main euro-zone area, as if they were changing back to their old currencies.

The economists suggesting that a euro break up is the solution, may have an agenda other than the benefit of the euro-zone economy itself and of course the citizens that live in the block's member states. A break up of the euro would mean its weakening as a global currency, thus a decline of its importance. Imaginably even to the dissolution of both new currencies.

It may provide an appealing solution to the nations facing deepest crisis and a relief to the rich core euro-zone countries, that won't have to bail out the peripheral economies anymore. But what will the potential cost be for the EU, if we decide with a break up of one of symbols of European unification?

The euro is not just an economic project but also a political one. If we decide to break it, we risk an eventual break up of the EU itself. If we dismantle it in two zones, then from what we have learned out of  this crisis, a currency union requires a political union. Breaking up the euro could result in breaking up the Europe in half.

Creating two separate currency unions would mean creating two separate political unions, two governments in Europe. One government for each new euro-zone, for the north and the south one. But who would ever dare to suggest such thing?

Breaking up the euro will also legitimize the creation of a two speed Europe, an unequal and divided continent. In the past Europe was divided by two different ideologies, now it will be divided by economics. We will be creating a rich core of European countries and a peripheral, poorer group of countries, using a weaker euro.


The euro was launched with great expectations and plans to harmonize Europe’s economies. It meant that the poorer countries would bit by bit become as rich as their richer partners, or so they have promised us. But in the end not only that did not materialize but the opposite happened. The inequality among EU countries deepened.

The cause of this is the unwillingness of the richer nations to allow the gradual transfer of wealth to the peripheral economies. If the euro was set up the right way and as any currency union should be, then this would resulted in the economic and political unification of Europe, under a centralized treasury.

It would have been a longer process of course, but the results would be more permanent and without the tremendous for the citizens consequences. Or maybe the creators of the euro, counted on its weaknesses to push for a different agenda for Europe's social policies and balance of power among its nations.

Perhaps the euro-zone crisis gives the opportunity to certain political and economic elites of certain EU members to push for an agenda that will lead to a new political reality in Europe, that otherwise would be unachievable.

Let us not forget that it is in fact Germany and its satellite states who benefit the most from the euro that still refuse to either dismantle it, allow the peripheral countries to leave or allow the creation of the euro-bonds, or any other viable solutions because it would hurt their economy.

If all the zone's nations are to keep the euro, then all including Germany must compromise. Right now Germany's economy is boosted, while the peripheral nations' economies are destroyed. Will this eventually lead to a more harmonized European economy, with Germany sharing the accumulating wealth with its partners?

Or will this wealth remain in the hands of the core euro-zone nations? If this is what is in the agenda of the German leadership, then possibly the break-up of the euro should be the solution. But this must not mean that the ECB in Frankfurt will be controlling the new euro of the south.

With a new euro we should establish a new Central Bank, possibly located in one of its members' capitals. It will be illogical for Europe's new currency to be controlled from a central bank of another currency union. So this will result in the political and economic division of Europe, something that no one wants at this stage.

But if the policies of the European elites continue the barbaric austerity policies imposed on the periphery, plus their stereotypical portrayal of the Southern European nations as "lazy," then we might have no other choice.

Europe is gripped by another ideological struggle, this time not between the Western Capitalist and the Eastern Communist. But the dominant Anglo-Saxon inspired "neo-liberal" financial traditions, versus the more socialist ones of the southern European countries.

In an effort to create a single European economy, the more affluent Northern European elites, see as an obstacle the Southern nations' economic and social structures or traditions. So they apply pressure on their governments by placing them on the mercy of the Markets.

For the moment the plan seems to work, but for how long will the citizens of Europe's South put up with the austerity? Or will the citizens of the North be happy to see their taxes being given to Europe's banks, through the bail-out loans towards the southern nations.

This has already caused a great division among the European population, that may in the future be an obstacle itself to the fulfillment of European unification. How can anyone unite the peoples of two regions that were encouraged by their leaders to see each other in a stereotypical way?

If Europe's leaders decide to break the euro, they should be ready to break the EU as well. Unless of course they take the more logical option and proceed with the political unification of Europe, that must include the harmonization of the continent's economies, resources and salaries. Thus the transfer and redistribution of wealth, to create a more equal European economy.

No comments: