Traders on the financial markets have long referred to a negative view on the prospects of the euro as “the widow maker”. For those of us of a certain age, it goes back to the days of multiple exchange rate crises, when the precursor to the euro, the European Monetary System, was forever fending off – usually successfully – speculative attacks on the French franc.
Using economic logic to decide where exchange rates should be has rarely worked in a European context: politics trumps everything and, for London- and New York-based traders at least, it was a wonder of the late 20th century to see so much economic sacrifice for the maintenance of an exchange rate.
Symbolism is everything in Europe, and so exchange rate stability became the totem of European political stability. Say that often enough, over decades, and it does become less weird.
The symbolism became even more elevated with, of course, the advent of the euro. It is an article of European faith that the single currency must be preserved at all economic cost.
Economic forecasting may have a very deserved bad reputation, but one big call the profession did make back in the day has proven to be spot on. In the run-up to the creation of the euro, every economist who was asked to forecast the consequences of a single European currency gave the same answer: Europe wasn’t ready, the conditions were far from ideal, and there would be huge financial costs. Absolutely right.
Existential speculation
It doesn’t matter. Just as betting against the franc a quarter of a century ago was a guaranteed financial disaster, so speculating about existential risk for the euro is something that has always lost money.
Traders have learned not to underestimate the will of European politicians to keep the monetary show on the road. While there are, from time to time, faint echoes of those currency crises of the past, nobody is willing to stake serious money on a break-up of the euro.
Nevertheless, it is worth saying: the euro was a mistake. One with huge economic costs that have generated torrents of human misery. Travellers and companies may have been spared the hassle and expense of changing money for tourism and trade, but these benefits are swamped by the euro’s contribution to the ongoing Greek disaster, two decades of lost GDP growth in Italy, and the Irish banking fiasco.
The list doesn’t stop there, of course – nor is the euro solely to blame for all of these catastrophes. But it is usually at or near the top of that list of the usual suspects.
Are those traders right to think that the euro will, nevertheless, prevail? The BBC, for one, is making documentaries that ask: will there be an EU left for the UK to exit? If the question was being asked by mainstream German and French commentators, we would take it more seriously. Should we take it seriously at all?
The fundamental problem is that for all their stupidity, xenophobia and overt racism, Brexiteers did have plenty of ammunition when to came to their criticisms of Europe.
Indeed, they would have had an even stronger case if they had restricted themselves to the economic and related problems Europe keeps failing to address. And it is that unwillingness, or perhaps simple inability, to do anything about the obvious design flaws of the euro that risks wrecking the whole project. It is all very well observing that Europe has prevailed so far, but that does not necessarily guarantee anything about the future.
Clearly, much is going to depend on the outcome of four key European elections over the next few months, in the Netherlands, France, Germany and Italy. Even if populists do not gain power in any of these countries, it is arguably the case that the political landscape has changed so much that business as usual is no longer an option for Europe.
Radical change – an oxymoronic idea for the last half century – is now necessary for the European project to survive.
One size or speed
What might that change look like? We already have hints from various quarters that Germany, in particular, recognises that one size – or one speed – no longer fits all. It is widely acknowledged that Greece, for example, should never have been part of the euro.
Sotto voce, the same thing is now said about other countries: multispeed Europe, long talked about, may now be the only option. Ironically, of course, it has long been desired by the Brits and should have been offered to Cameron ahead of his Brexit referendum.
Big trouble or big change is coming to the EU. Perhaps it will be both. Either way, we will be affected, perhaps profoundly. Just as the old ways will no longer do for Europe, new thinking is required for Ireland.
Political economy is fundamentally about trade-offs, and dealing with reality rather than fantasy. Theresa May’s promise of maintenance of the Common Travel Area along with a frictionless (note: not friction-free) Border is, in Brussels at least, an example of pure wishful thinking.
The Irish love affair with Europe is both hard-headed and soft-hearted. All those structural and cohesion funds have been most welcome. And it has always been fun to be passionately in favour of something that the Brits so obviously hate.
Yet we wouldn’t have had a such a massive banking crisis without the existence of the euro. We rarely factor that into our calculations. And we will now be sending money to Brussels as one of the richest EU nations – with even more to be paid after the British leave.
Those who argue for an unthinking and ongoing affection for Europe, with its very uncertain future, will have to make a new case: that the likely massive social, political and economic costs of a hard Border on this island will be worth paying. At the very least, that assertion should be opened up for debate.
