Jim O’Neill argues that as the euro is now stronger than when first introduced, that is proof of its success. It is a short-sighted claim, and Europe’s exporters certainly see matters differently. And as we approach the currency’s tenth anniversary, a more important question needs to be put: Has the euro accelerated or slowed the economic growth of EU member states?
The figures are relentless. In the continuously integrating EU, economic growth has slowed decade by decade. In the 1950s, the average economic growth of western European economies reached 5.8%, then fell to 4.3% in the 1960s, 3.2% in the 1970s, 2.3% in the 1980s and 2% in the 1990s. In the first five-year period of the 21st century, the eurozone’s growth rate dropped to 1.7%.
Far from benefiting the economic development of its members, the European single currency is doing it harm. The eurozone is growing more slowly than the European Union as a whole, and notably slower than the United Kingdom which of course has not adopted the euro. Experience during the past decade clearly shows that the introduction of the euro was a mistake. It was motivated politically, not economically.
The European monetary union is part of a plan to establish a single state in the EU. Its economic lack of success can be seen in countries like France and Germany, that are exporters of capital. The euro is slowing these countries’ economies and causing deflation. In countries at the edge of the eurozone into which capital is flowing − Spain, Portugal and Greece − inflation is, conversely, higher.
The EU’s monetary union is not an optimal currency area. The uniform armour of a single monetary policy has varying effects on individual members of the eurozone. The European Central Bank is implementing a monetary policy, that is too restrictive for Germany and France and too expansive for Spain, Portugal, Ireland and Greece. Unemployment, meanwhile, remains high in the eurozone.
The eurozone’s success does not depend on who represents it but on the workings of its monetary policy. Even if just a single entity were to represent the eurozone at such global forums as G-7, G-8 or the IMF, as Jim O’Neill suggests, this would not be of any help to economic development. Besides that, Germany, France, Italy and the United Kingdom are sovereign states so there is no reason why they should be represented by the EU.
As opposed to the dynamic and open United States, with its average long-term growth of 3-4%, the EU suffers from a lack of growth stimuli. This is the result of over-regulation of the European economies, inflexible labour markets and Brussels’ efforts to harmonise and unify all kinds of things, whether possible or impossible.
The Maastricht criteria were created as a scourge for sinners who were unable to control their public finances or inflation. Enforcement of these criteria is, however, hypocritical. They are applied to the new members in a manner that is incredibly stringent. When two years ago Lithuania failed to meet the inflation criterion by 0.1%, the European Commission refused to let Lithuania join the eurozone. When Germany and France couldn’t meet the Maastricht criteria for several years, the Commission imposed no penalties at all.
With double standards being used inside Europe’s monetary union, it’s small wonder that some of the new members are not so keen to join the eurozone. The Czech Republic has postponed its eurozone accession to some time after 2018, and seems not troubled at all by this decision. Europe’s hopes for the future lie not with the euro but with removing barriers, limiting regulation and strengthening individual freedoms and responsibility.