Is Euro divisive? Or is it an integration tool of the EU?

Euro coins and banknotes entered circulation 10 year ago, on 1 January 2002.

Questions:

1. The euro contributed to the integration of the EU, but especially now, during the crisis, many argue that the project of euro contributed also to the division of the EU. What is you position?

2. I know it is a speculation, but would you say the euro will once become a currency in all EU member states, or not?

Answers:

Erik JonesProfessor of European Studies, Director, Bologna Institute for Policy Research, Paul H. Nitze School of Advanced International Studies (SAIS), Bologna Center, The Johns Hopkins University

1. The introduction of common notes and coins ten years ago had an impact that the principal architects of the single currency greatly under-appreciated. I call it the ‘gee-whiz’ or ‘wow’ effect. Not only was the money quickly introduced and widely circulated, but it really did have an impact on people psychologically when they were able to cross national boundaries without changing currencies (or doing the necessary mental gymnastics to multiply prices by exchange rates). I remember the first time I flew from Birmingham to Bologna over Frankfurt in the spring of 2002. I had a layover in the airport and so I changed some of my pounds into euros. The experience was electric. And when I used the same money in Italy later that day, I was well-aware that things had changed.

But having said that this effect was under appreciated, I would not encourage you to over-estimate its significance. While I was impressed with the speed and efficiency of the changeover, many people in Italy felt something very different. They saw day-to-day prices increase dramatically and they feared that everything became more expensive. The psychological impact here was significant as well. It created a lingering suspicion about the merits of the single currency and it fueled a short-lived but very vocal criticism of the project as a whole.

I think the lesson that we should draw from these two experiences is that the people should have been more involved all along — because while some surprises are very positive (like the ‘gee-whiz’ effect, I mentioned), surprise is not something that policymakers can wield as an instrument and very often moves beyond their control. That lesson is easier learned than implemented. I worked for six or seven years with the European Commission in its campaign to raise awareness about the euro. They made a huge effort. But the impact of that campaign on popular awareness was significantly less than we could have hoped. And the proof lies in the fact that no matter how amazingly efficiently the common notes and coins were introduced, people still express resentment about the changeover.

There is an important difference between these two psychological effects. The ‘wow’ effect brought Europe together. The sense of frustration with rising prices during the changeover pitted one Italian against another — and not Italy against the rest of Europe. On balance, I think the euro was much more important in promoting integration despite its drawbacks.Moreover, I think that balance holds today as well. People are frustrated with austerity and what they perceive as a new tyranny of the markets; they are dismayed at the lack of solidarity across countries; and they want to see everyone play by the same rules. But I don’t think that this means people want to do away with the euro or that they are eager to abandon Europe either. They just want things to work better.

2. I think the euro is a superior technology to national currencies — and so it will tend to get larger rather than smaller as governments find it easier to work within the single currency rather than suffer the inconveniences of trying to go it alone. I don’t think that this means everyone will adopt it. The British are unlikely to abandon the pound, but then again they don’t drive on the right side of the road either. There will always be the potential for countries to stay out. But I doubt seriously that any country will leave the eurozone and I suspect at least a few will try to join.

Miguel Otero-IglesiasAssistant Professor in International Political Economy, ESSCA – School of Management, Centre for European Integration

1. I don’t buy the argument that the euro has divided the EU. The euro has always been a political project, from the start. It is about creating a political union strong enough to face the challenges of the 21st Century. The countries that have joined the euro project from the start and those that joined along the way decided that it was in their best interest to join this political union in the making. The aim is clear, to join forces in order to be better protected, more autonomous and more influential in the world. Some countries did not see the need to join this political project because they felt strong enough to go it alone ( i.e. the UK) or because they were happy to live within their national sovereignties and to play a reduced role in international affairs (i.e. Denmark and Sweden). This ever evolving political project is now entering in a new phase and some of the leaders of the EU countries are questioning whether it was wise to join the project or to stay outside of it. These phases of uncertainty are always difficult not least because transcendental decisions about the future of societies need to be made. Soon we will see who are the leaders with vision and determination and who is not up for the historic task.

2. I think I have partly answered this question in question 1. As you say, this is pure speculation, so it is difficult to foresee. We can work with different scenarios. Scenario 1 would be a break-up of the euro. I think if this happens, the EU project will be seriously damaged. The whole EU project might fall apart. Scenario 2 involves the strengthening of the Eurozone governance structure. The Eurozone moves toward a fiscal union and a political union. If this is the case, the countries outside the euro will have to decide whether they join this political union or whether they stay outside. If they decide to stay outside, I think that the coherence of the EU will be questioned. Scenario 2A can be described as the gradual merge between the EZ and the EU. Scenario 2B might imply a strengthening of the EZ but increased tensions with the non-EZ states within the EU. These states might see the need to leave the EU, or the EZ states might see convenient to leave the EU and create a separate structure.

Eric de Keuleneer, Economics Professor, Solvay Business School

1.  I think it is fair to say that the Euro is divisive. It is divisive of course by pitching many non-euro countries against the euro-zone, and it has been divisive also within the euro zone, because not enough care was given to get a convergence of the euro-economies. One can hope that in the future the euro zone will either schrink to a more coherent core (unlikely), at a great cost, or it will force more convergence  within the euro-zone, with great social upheavals.

2. I do not believe that big countries or Scandinavian countries that are outside today will join the euro in a foreseeable future.

Hans Martens, Chief Executive, European Policy Center

1. The Euro still contribute very much to European integration. Firstly it functions as the common means of payments, so all the advantages of no exchange costs etc are still there, but more importantly it gives us currency stability. Without the Euro, Europe would have been much more fragmented with probably everybody having devaluated against Germany, which would upset trade and markets, and would have given us much higher interest rates that we have today. So the Euro integration means we have avoided the rounds of competitive devaluations we always saw before plus a stable, low interest rate.

The split you are talking about is created by countries that have not been good at restoring their competitiveness and keeping their public finances. But it all comes down to the growth crises that most of us are in and have been in since the US meltdown in 2008. That is where it came from, and we have no been equally good in dealing with the situation, thus the divisions, but I much prefer us working together to get out of this that the old fashioned way of competitive devaluations.

2. The Euro will only become the currency for all if UK leaves the EU, I believe. I can see the Euro in the future as the currency for the 26 plus Croatia!

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