Poll Shows Many Believe Euro Has Hurt Economies

When most of the European Union adopted the euro as a common currency, it was supposed to make everyone’s life easier and richer. According to a poll by the Financial Times and Harris Interactive, “more than two-thirds of French, Italian and Spanish citizens, and more than 50% of Germans, think that the advent of the single currency, which was introduced eight years ago, has been bad for their country,” said the Guardian. Is this a case of misperception or did the pro-euro crowd over-promise and under-deliver?

The euro has been the single currency in the core of the EU for eight years now, and the first thing one must acknowledge is that people forget what things were like. A trip from Lisbon to Warsaw required several stops at bureaux de change to move from escudos to pesetas, to francs, to guilders, to marks. Each stop left a little bit of money with the banker. No more.

For businesses, things got easier because the foreign exchange risks for companies operating in Italy, Germany, France and Benelux simply went away. Accountants found the annual audit got simpler, and some even got to spent time with their families during tax season. In addition, the price of stocks, bonds and other financial instruments became more transparent, and that boosted Europe’s capital markets.

However, the price for this was big. Governments gave up the right to set interest rates at levels appropriate to local conditions. In the good old days, a Greek government with a sluggish economy could cut interest rates and indulge in deficit spending. No more. Now, the European Central Bank keeps an eye on interest rates for everyone and monitors local spending. As a result, there are places in Europe where the ECB is implementing policy that doesn’t fit local conditions.

The euro isn’t about to be abandoned, and indeed, there will be new countries adopting it. Having joined up, it would be onerous to opt out again. Even so, the euro took the stability of the D-mark and imported the political risk of places like Greece, France and Italy, as well as the economic troubles of the weaker EU nations and gave the resulting unit of account to the world. It was never going to be pain free, but it’s downside was grossly under-reported.

© Copyright 2007 by The Kensington Review, Jeff Myhre, PhD, Editor. No part of this publication may be reproduced without written consent. Produced using Fedora Linux.

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