One has to face the facts: - there is still a lack of understanding on the part of many Europeans when it comes to the euro. I believe the responsibility for this does not lie with the citizens, who complain about the odd detail here and there in opinion polls, but with demagoguery and the ignorance shown by part of the political classes - as well as information imparted to citizens with emphasis on the problems rather than on what is essential. I shall come back to this disenchantment, which is only marginal in most Member States but of a majority nature in others, firstly to recall the recent debates on single currency between political officials responsible for European economic and financial affairs.
Serenity and surveillance regarding exchange rate. At the end of November, the Eurogroup had held a debate on the euro exchange rate at the request of France that felt the $1.32 per euro rate compromised European exports. Summarising the result of the debate in the final press conference, President Jean-Claude Juncker had avoided mentioning any immediate concerns or dangers, while affirming that the Eurogroup considers that - “as has always been and will always be the case” - excessive volatility and uncontrolled movements of exchange rates are undesirable (see Albin Birger's account in our bulletin No. 9316). The 1.32 mark had been exceeded a few days later and, after several peaks above 1.33 in December, the rate is currently a little more stable. According to indications available on the way ministerial debates have unfolded, French concerns were not shared by the other ministers. Some (Netherlands and Austria) had pointed out that there are advantages to having a strong euro, mainly for oil and gas imports as well as for consumers in general, and that the main exporting countries, with Germany in the lead, had stressed the rate mentioned above was not a problem for them. German exports have never been as strong as they are today. Also, the euro/dollar exchange rate has been more or less stable since the end of 2004. Today, a dangerous rate would be around 1.40. Any problems that might exist are in relation to the Japanese and Chinese currencies.
Concerns regarding the export situation are almost exclusively expressed by the French, which goes to prove that it is mainly an internal problem linked to competitiveness and to the fact that certain reforms are taking time to implement.
The conclusion reached by Eurogroup is therefore quite clear: there must be surveillance, stability is desirable, but there is no need for excessive concern about the current rate. It is therefore of significance that Mr Juncker's words are exactly those set out in the conclusions of the September G7 Summit in Singapore, of which the press release reads: “Excess volatility and disorderly movements in exchange rates are undesirable for economic growth”.
How can one forget the sarcastic and triumphalist criticism by anti-Europeans at the time when the euro had weakened and when it was slammed for having burnt up one quarter of European wealth? These are the same people who shout the loudest today against the euro's strength, when it must be a strong and stable currency. It is thanks to the euro that Europe has not suffered any over-damaging consequences after the surge in oil and gas prices, and that it had avoided the adverse repercussions of the financial crises in Asia and Latin America, not to mention the devaluations and periodical re-evaluation which traumatised the EEC in the past and compromised the very existence of the common market.
Ambitions. The vigilance of the euro group should have reassured the French Prime Minister, Dominique de Villepin, and encouraged France to correct its failings. But the analysis would be incomplete if it were to neglect the fact that Mr de Villepin's speech delivered on 14 November also contained an appeal to the EU to acquire a true “exchange policy, in liaison with the European Central Bank and in respect for its independence”. Article III in the Treaty entrusts to the Council the possibility of establishing an “exchange system” for the euro or, if there is no such system, “general exchange policy guidelines”. This article provides for the Central Bank and the European Commission to be involved in such achievements but it is up to the Council to decide. For now, there is no talk of this either within the Eurogroup or within the Ecofin Council. Could Mr de Villepin's statement trigger the mechanism? Finance ministers are apparently distrustful …. So we come to the second aspect of this overview: strengthening the Euro group. It is obvious that the definition of an exchange system or general guidelines should not be up to the Ecofin Council as a whole, but to the countries of the euro zone. Last month, Jacques Delors had suggested that Economic and Monetary Union should become “real enhanced cooperation, with its own budget allowing it to accompany the efforts made by euro zone countries, and perhaps also an economic intervention fund to be used reasonably, of course” (see this heading in bulletin No.9327). Such a guideline had nonetheless left Jean-Claude Juncker perplexed although he confirmed he was in favour of strengthening the Eurogroup, adding (when speaking before the EU delegation at the French Senate): “Should this be done right now, without a fundamental Treaty? I do not think so. We have this difficulty at the Eurogroup, of which France and the Netherlands are part. We want to make the Eurogroup a pioneering group, but is this possible when two of its members have voted no? (in the referendums on the constitutional treaty)”. He went on to conclude: “we must take time to find the right intersection”, in order, that is, to correctly position Eurogroup autonomy in relation to the constitutional Treaty.
This said, Mr Juncker's ideas about strengthening the Eurogroup are quite clear. He considers it essential for the European Central Bank (ECB) to be autonomous, failing which there would be “incessant debate between Member States over monetary policy” and especially over interest rates. Monetary policy “must be defined for the whole of the euro zone”. Specific difficulties experienced by any of the Member States or by any sector must not affect decision-making (even though they should be taken into account). The ECB has “acquired great credibility because it has been able to convince people that inflation will be less than 2%”. What must be improved is the interaction between monetary policy and economic policy. Mr Juncker pointed to a three-way direction: better coordination of economic policies, more structured dialogue between all players and unified external representation of the euro zone.
As you can see, we have come a long way since the protests and insults against the ECB because, in December, it had again put its interest rates up. Accusations against the ECB that it would be detrimental to economic recovery, belong to the worst kind of demagoguery when these come from the same persons who recommended that the euro should be done away with, even when it is a known fact that, in most Member States, giving up the euro would immediately bring about a spectacular rise in national interest rates.
Demagoguery and false information. We thus come to a third section: the negative perception that part of the public has of the euro. The results of polls published last month point to largely positive opinions in several Member States. But in four of them, about 60% of the citizens questioned say that the disadvantages of the euro outweigh the advantages: these countries being the Netherlands, Italy, Greece and Portugal. In other words, for these national majorities, it would be preferable not to be part of single currency - or to come out of it. The case of the Netherlands is specific: what the public holds against Europe is the excessive tolerance towards those who do not comply with the commitments of budgetary austerity and inflationary measures. Furthermore, at the time of creating the euro, the Dutch were clearly reticent about the participation of the “Mediterranean countries”. In the three other countries mentioned (and in some other Member States, albeit to a lesser extent), citizens complain about the constraints imposed by the euro and the efforts and sacrifices that would have to be made by the population because of the euro, as well as the impact that the euro has on the cost of living. This impression results, I believe, from lies and ignorance on the part of political leaders and from the way such positions are passed on by information channels. People are told that the euro means reform (which, in any case, is necessary especially in countries outside the euro zone) and that it is responsible for price rises - and then surprise is expressed at the way people react to this!
In the largest of the “negative” countries, Italy, an eminent political personality reacted with indignation to this - Azeglio Ciampi, former President of the Republic and earlier Governor of the Central Bank and Finance Minister. He recalled that, in 1992 and 1993, Italy was close to a complete monetary disaster, “just one step from the abyss into which Argentina then fell”. Treasury bonds had to be issued at increasingly high interest rates, which expanded the public debt and made budgetary rehabilitation impossible. Devaluations caused a “drastic impoverishment of the country”. Without the euro, Italy “would perhaps be bankrupt today”.
Economists and analysts assert that, for most European countries, a return to national currency would be a “folly, at an exorbitant cost”. The advantages of competitive devaluation for Italian exporters would be short-lived, as all imports (especially oil and gas) would be horribly expensive. Interest rates would rise immediately with disastrous effects on the economy in general and for the public debt in particular. In Greece, the drachma would lose 40% compared to the euro in one go, and State borrowing would “fall into the category of junk bonds immediately”. In countries like France with a healthier economy, borrowing in euros would “hold good” but future borrowing in francs would not be easy. What does public opinion know about such truths?
(F.R.)