Brussels and the Vatican always offer the same standard answer whenever there is a call for change: TINA (There Is No Alternative). In the European Union this expression is always heard with regards to the Euro. Anyone who sets out to search for alternatives, to reform the Eurozone, is dismissed as a doomsayer. A report titled "The Netherlands & The Euro", requested by opposition party Partij voor de Vrijheid (PVV) and conducted by the British 'Lombard Street Research Institute', disappeared unread into the paper shredder. Even though it was a very thorough study. The Euro-Pope, Herman Van Rompuy, had the study banned before it was even published. Brussels spreads no greater deception than in the debate about the Euro, fueled by endlessly-repeated false arguments:
Argument 1: "The Euro promotes properity in Europe". In the 20 years before the Euro, the Netherlands recorded average growth of 3% annually. In the 10 years since the Euro was introduced, this percentage fell back to 1.25%. Germany saw absolutely no growth between 2002 and 2005. In Italy, growth has stagnated. Sweden, which declined to join the Euro following a referendum, has flourished in the past 10 years.
Argument 2: "Without the euro, the EU will fall apart". In the European Union there are 17 Eurozone countries and 10 EU countries that retained their own currency. The non-Euro countries enjoy good relations with each other and are full members of the internal market. The Eurozone on the other hand has become more of a 'quarrel-zone'. 10 years ago, Germany was the most popular country in Greece. Now it is hated.
Argument 3: "The Euro promotes economic stability". The Euro has caused enormous inequalities within the Eurozone, because of the low interest rate. This gave many countries access to cheap money for the first time in their history. Greece, Italy, Spain and Portugal borrowed money heavily - public and/or private - from countries with large trade surpluses, such as Germany and the Netherlands. In Italy, wage costs increased by almost 30% compared to German levels. The same happened in Spain. And as for Greece, that's where the party really started. This cheap funding provided money for a banking bubble in Ireland and a real-estate bubble in Spain. More than half of all Eurozone countries lost their competitiveness, including France. Unemployment among young people in Spain is currently at 50%, partially thanks to the Euro.
Argument 4: "Without the Euro, European banks would have collapsed". The financial crisis that started in 2008 has only revealed the weaknesses of the Eurozone, it has not caused them. The banks were already on the wrong track. The three main French banks have a collective debt of 250% of French GDP. Two stress tests followed, and almost all banks proved to be doing miraculously well. This of course was self-delusion. The European Central Bank gave an infusion of more than 1 trillion Euros. In Italy, Spain and France banks were encouraged to buy government bonds against any collateral. Weak banks bought bonds of weak states, against weakened collateral. Martin Blessing, chief of the German Commerzbank, told Die Welt that he borrowed money from the ECB to hedge against a breakup of the Eurozone.
Argument 5: "Without the Euro we would now have monetary chaos". Before the Euro there was a more flexible currency system, in which stronger currencies were fixed to the D-Mark. The Dutch Guilder belonged to this 'D-Mark zone'. Countries with greater volatility were in a looser relationship with each other, and were able to devalue. Italy did so regularly. Without the Euro, Europe would have survived the financial crisis: the D-Mark zone would have been the saving anchor. Greece, Italy and Portugal could have devalued. Now this is impossible. And tensions within the Eurozone continue to grow.
So should there be a re-introduction of the Guilder? This is indeed an open question for a country with an open economy. The Netherlands have a large current account surplus, so the value of the Guilder would inevitably rise against the Euro. This is bad for exports. On the other hand, interest rates would fall. Imports would then be cheaper. What is crucial is the relationship with Germany. In the 90s, Dutch labour costs in the industrial sector were smaller than they were in Germany. Since joining the Eurozone, those labour costs became bigger, as Germany pushed down wages. Because of this relationship with Germany, it is too risky for the Netherlands to proceed alone.
A reform of the Eurozone requires more than the exit of one of the countries. If the rate of deflation in Southern Europe causes a permanent recession, the whole Eurozone will become a 'stagnation zone'. Ultimately, the only solution is for countries with a trade surplus to step out of the Eurozone, including the Netherlands and Germany. The Euro would then devalue so that Mediterranean countries could regain their competitiveness and return to growth. The traditional exporting countries would recover as if they were within a 'D-Mark zone', with a stable common currency. This would allow them to export as strongly as before with the D-Mark.
Brussels has responded to skepticism among the general public with the wrong arguments. Soon there will be Presidential elections in France, Parliamentary elections in Greece, and a referendum in Ireland about the Euro. The question is whether voters believe all the European rhetoric.
Published on March 13, 2012 in the NRC