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Europe and the euro

Europe and the euro
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First Published: Thu, Oct 28 2010. 09 29 PM IST
Updated: Thu, Oct 28 2010. 09 29 PM IST
Paris: For anyone living in the 16 euro zone member states, the euro’s enduring success is both a technical and an emotional issue; both hearts and minds are involved.I consider it axiomatic that the euro is vital to Europe and,indeed, to the world economy.
First of all, it should be recalled that the European idea began as a project for ensuring peace and democracy among Europe’s peoples. When the new currency was intro in 1999—and even more so when European citizens had their first opportunity to use it in January 2002—it was experienced as the most tangible, decisive proof that European integration was a reality. As the slogan goes: euro in your wallet, Europe in your pocket.
Twenty years after the European parliament was elected by universal suffrage in 1979, the introduction of the euro marked a logical extension of the European dream.
It should also be recalled, however, that when Slovenia entered the euro zone in 2007, many people suggested that the country was somehow joining “Old Europe”. But Cyprus, Malta and Slovakia have since followed suit in making the euro their currency. From Dublin on the shore of the Irish Sea to Bratislava in the foothills of the Carpathians, the same coins and banknotes are legal tender, and they are constantly pushing back the European Union’s (EU) boundaries. Tomorrow will bring additional members, such as Estonia, which is slated to join the euro zone on 1 January.
Europe’s “founding fathers” were right that “Europe will not be made all at once”, and neither will the euro. Our common currency should rather be viewed as an inspiring symbol—the symbol of a Europe that is vibrant, attractive and, above all, cohesive.
Just how cohesive Europe can be is something that we know from the experience of the past few months. The history of the euro, not surprisingly, has turned out to represent a further stage in the ongoing saga of a European economy that has been in a state of perpetual construction since the Treaty of Rome.
The financial support provided to Greece; the new European Financial Stability Facility, which we created to extend guarantees to euro zone member states in need; and our efforts to achieve more effective financial regulation are among the latest illustrations of European cohesion in practice.
Admittedly, the various crises affecting the euro zone have highlighted—sometimes starkly so—the need to reform our institutions and the way they operate. It has been argued that Europe’s institutions move forward only in times of crisis. Perhaps the same is true of the single currency, which will derive strength and validation from the challenges that it overcomes.
In the last few months, as it just barely emerged from the deepest economic and financial crisis in close to a century, the euro zone experienced the worst jolts in its history, although in terms of public finance, the euro zone as a whole has fared better than the US or Japan. Once the extent of Greece’s financial crisis and the difficulties encountered by other member states became known, the euro zone economies found themselves on the brink of disaster.
But the EU reacted swiftly and forcefully, with a support programme for Greece and a financial guarantee plan for the entire euro zone. In this state of emergency, a genuine European economic government, most compellingly advocated by German Chancellor Angela Merkel and French President Nicolas Sarkozy, began to take shape.
Following the European Council meeting in June, France and Germany jointly outlined a number of possible reforms. Three key points emerged, concerning the need to:
• Strengthen the Stability and Growth Pact, notably through enhanced European coordination during a “European semester”
• Maintain our efforts to expand the scope of economic surveillance to include government deficits and public as well as private sector debt, if necessary by imposing “political penalties”
• Establish a credible crisis-resolution framework without encroaching on the budgetary prerogatives of member states
Other possible approaches are under consideration as well. But what they all share is the recognition that the time has clearly come to stabilize and institutionalize a European economic government. That process is already well under way. The European Commission has made proposals, and the working group chaired by European president Herman Van Rompuy, in which I represent France, will be submitting its own in the fall.
We all expect that the euro, which proved to be such an asset during the crisis, will be just as effective in getting our economies back on the path to vigorous, sustainable growth. Indeed, according to Eurostat (the EU’s statistical office), by the second quarter of 2010, the euro zone was growing faster than the US, while the euro remains the second most widely used trading currency.
The euro, like the EU itself, is an exciting adventure that must continue—and we intend to make sure that it does.
Paris Christine Lagarde is France’s minister for the economy, industry and employment
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©2010/Project Syndicate
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First Published: Thu, Oct 28 2010. 09 29 PM IST