The crash of the Euru

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Ten years ago Saturday, the European Union celebrated the launch of the first euro coins and notes with fireworks, parties and solemn speeches.

Today, several members are on the edge of bankruptcy. First-world Europe is reduced to asking the IMF and China for help. The euro itself is at risk of unraveling.

How could it all have gone so wrong?

In a series of interviews with architects of the euro – a former president, a former prime minister, two former finance ministers, a former central banker, a former EU commissioner and a former EU Affairs minister – common explanations emerged.

The single currency would not have sparked the euro zone debt crisis, they argued, if the pro-European dynamic that led to its creation had continued into its first decade. But instead of launching an economic and political integration of Europe, the low interest rates and easy money that arrived with the euro led peripheral states on a path of profligacy, widening the gap with frugal, export-oriented economies of the north.

Meanwhile, as rapid enlargement made EU decision-making more cumbersome and as citizens’ enthusiasm for Europe waned, EU leaders hollowed out the authority of the European Commission, the union’s chief executive body and guardian of its treaties and of fiscal probity.

Most of all, some of the architects now admit that after the first few euphoric years, it became clear the euro itself was a flawed concept, laying a single currency over a group of countries that stuck to national sovereignty over their economies.

The euro was a dare from the get-go. Former British Prime Minister Margaret Thatcher famously spurned the currency as unworkable and a threat to sovereignty; Sweden stayed out, too. Euro boosters themselves pushed ahead with the project despite sharing misgivings about its inherent political and economic flaws.

“One thing was evident to me from the beginning,” said Guy Verhofstadt, leader of the European Parliament’s Alliance of Liberals and Democrats, Belgian prime minister from 1999 to 2008, and one of Europe’s most federalist politicians. “A state can exist without a currency, but a currency cannot exist without a state.”

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FROM UNION TO DISUNION

One of the driving forces of European integration is former French President Valery Giscard d’Estaing. Now 85, he resides in a stately Parisian townhouse filled with museum-quality 18th-century furniture.

As president from 1974 to 1981, Giscard, with German Chancellor Helmut Schmidt, helped create the European Monetary System and the European Council summits of EU leaders. Early last decade, he chaired the drafting of the European Constitution that later became the Lisbon Treaty, which governs EU institutions as they function today.

For Giscard, one of the key reasons for today’s euro zone debt crisis is the EU enlargement of the past decade, in particular in 2004, when 10 countries – mostly former East Bloc nations – joined the European Union. “By the time the euro was introduced, the group was no longer homogeneous,” Giscard said in an interview.

The European Union now counts 27 members and is set to receive a 28th – Croatia – in 2013. Enlargement has made the European institutions hard to govern, he says, notably the executive European Commission, which has a commissioner for every member country.

The crisis erupted first in Greece. Giscard, a hellenophile, did as much as anyone to bring Athens into the European Union. He championed its EU candidacy at a crucial moment in 1979, fending off German objections and European Commission reservations at the time against admitting the country just seven years after the fall of its military junta.

Greece joined what was then called the European Economic Community in 1981. Two decades later, in 2001, it joined the euro.

Standing in his ballroom-sized entrance hall, decorated with deer antlers and two enormous elephant tusks, Giscard now voices the unthinkable: Greece should consider leaving the euro.

Giscard said that a deflation, or economy-wide drop in prices, of 40 or 50 per cent would be necessary to restore competitiveness if Greece remains in the euro. That is probably too hard for its citizens to bear, which makes a euro exit and consequent devaluation a more acceptable outcome.

The Greek people need to study “seriously and honestly” whether to go back to the drachma or stay in the euro. “It’s a Greek choice.”

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I personally think that there is going to be a disunion. The EU is getting bankrupted.

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