The Euro Crisis now marks its fifth anniversary and affects one country after the other. The common currency is (ab)used as a medium of wild speculation by freely operating players on the financial markets; what remains are investment ruins defacing beautiful landscapes and a population pushed into poverty and misery. Not general wealth but social exclusion is the result of the invisible hand of the free markets and of the pulpable operation mechanisms of the European Monetary Union.
Similar experiences to those in latter-day Europe were made by the people in the Third World during the 1980's debt crisis, by the emerging markets in Asia and Latin America one decade later and by the mortgagors in the US in the subprime crisis after 2007. In each of these crises private financial institutions had incurred high speculation losses and were saved with heaps of money if deemed 'systemically relevant'. These manoeuvres massively jacked up the public debts. Compared to the national product the liabilities amounted to an average of 90% in the Eurozone, albeit 60% being the Maastricht-decreed ceiling; in Italy they amount to roughly 120%, in Greece up to 150%.
The debt brake as a neoliberal brute-force method, issued Europe-wide with the fiscal pact, made it impossible to fund the bank bailout by means of new debts. Higher income and corporation taxes are prevented by tax competition, which provides incentatives on unregulated financial markets to tax one’s assets in places offering exceptionally low tax rates.
It's a truth universally acknowledged: As the tax burdens decline, the appeal of financial centres increases. Thus drastic cuts of government expenditures which are not tied to the debt service are pushed. The conservatives, who are in charge all around Europe, follow their self-made rules and dismantle the welfare state ‘as savagely as possible’. The social foundation of democracy is eliminated and what remains is little more than an empty shell, 'capitalism without democracy', as Wolfgang Streeck correctly diagnoses. Human Security, an explicit goal of the UNO since the early 90s, yields an increasing insecurity – not at least because many public goods vital for human security fall prey to the ongoing social eradication. In the heat of unconsiderate hardcore-economising many people lose their jobs and consequently their secure income source as the most important cornerstone of human security. If hence, as it happened in the Mediterranean States, health care is restricted or eliminated and educational institutions are shut down, the triangle of human rights, human security and human development – socially constructed within the last decades – is shattered.
In a nutshell: At the beginning of the 21st century misery returns to Europe, after it had been successfully banished in the Keynesianly shaped ‘socialdemocratic decades’ after 1945. Here, the bitter truth of Tony Judt’s words is reflected: Briefly before his death in 2010 he claimed that the Left of the 20th century, ‘the Age of Extremes’, still had something to defend – namely all the social achievements Europe currently jeopardises.
Even though all European countries are suffering from the impositions of the crisis, its impact on them greatly varies despite a common currency. This can be seen exceptionally well with regard to the ‘TARGET2 balances’ of the European Monetary System. Reportedly, at the beginning of 2013 German banks alone had receivables of about 700 billion Euro and the South European countries accordingly high liabilities. This inequality indeed displays a qualitative difference. Anyone with just a basic knowledge of arithmetics will realise that the reduction of these public debts is only possible if two requirements are met: First, not the public sector but private enterprises have to incur debts to fund investments, and secondly, liabilities as well as private assets need to be reduced with the help of property levies ad wealth taxes. Both measures are missing in the current austerity programme, which is thus bound to fail.
Within the Euro member countries the principle of nation statehood applies, which is reflected in the formal equality of all states. It is obvious, however, that the states are not equal at all when it comes to their influence on the monetary area. Cyprus contributes 0.2% to the EU gross domestic product, Malta 0.1%, Slovenia 0.4% - Germany on the other hand 27.5%, France 21.2% and Italy 16.8%. The contingencies of the various countries of the Eurozone are utterly different despite their formal equality. This would also be the case if the Eurozone did not exist, that is, if the Eurozone was dissolved and if national currencies - and therefore an economic tool which had not been available since Maastricht – returned: the exchange rate with its inherent potential of appreciating and depreceating a currency.
It is high on the agenda to wallow in nostalgic memories: Back then, had it not been the policy of depreciating the Deutsche Mark which led to the German export strength and thus contributed to the Economic Miracle? Did Japan not successfully pursue this strategy and hence made the USA force them to an appreciation of the Yen in 1985's Plaza Accord as not to be contested deeper into account deficits? Did emerging countries like Brazil not use the depreciation of their currency to boost their development? Even China nowadays uses the exchange rate as an economic tool undeterred by other political powers, as their disputes with the US and the EU about appropriate currency relations illustrate.
No, the clock of history cannot simply be turned back. What had been omitted in the resolution of the Maastricht Treaty in the early 90s – the establishment of a real, political Union – could not even be rectified ten years later when the Euro was put into circulation in ready cash. 'Money is itself the community', Marx stated, and a European Monetary Union will thus always mark the constitution of a European community as such. Hence it was with good reason that Jean-Pierre Chevenement requested already in 1997: 'Who won't speak politics must remain silent about the Euro.' Also the opposite is true: Who speaks about the Euro needs to think politics. The dream of the former President of the German Central Bank, Hans Tietmeyer, of an 'unpolitical Euro' was nonsensical even 20 years back. It is remarkable though that the German Central Bank was far beyond this point at the time of the Maastricht Treaty. At the beginning of the 90s they could not well imagine a monetary union without political integration.
Here it makes sense to remember Margaret Thatcher's statement: 'There is no such thing as society. There are individual men and women, and there are families.' The Iron Lady was right in a terrible way: There is indeed no European society (according to Thatcher there are none at all). However, this is no coincidence. The architecture and construction of the Monetary Union was assigned to neoliberal monetarists from the very beginning. They did not give a damn about ‘such [a] thing as society’ and drove Europe, complying with regulating economic laws, into the ground. Neither did the monetarist hard-liners give a damn about consensus and cooperation, in fact they made the Tietmeyer-attempt to invent an ‘unpolitical Euro’. Depending on the point of view, this either failed magnificently or miserably.
The great economist Joseph A. Schumpeter was completely right: 'Nothing shows as clearly what kind of wood a nation is carved from as what it does in its monetary policy.' The people of Europe allowed that financial markets in the Euro area are insufficiently regulated, that deposit protection and liability law are incomplete and that rating still is the business of profit-oriented enterprises instead of being a public concern. Shadow banks may unrestrictedly gamble with adventurous financial products in high-speed – and no supervisory authority will prevent them from doing so, as the exposures of the ICIJ have clearly shown just now. These free financial zones still exist and the movement of capital still rejoices in all freedoms possible – to the financial advantage of the gamblers on the financial markets and at the expense of societies. A strange hybrid has emerged in Europe: a monetary union offering all the freedoms of capital movement but lacking the social legitimation and political regulation necessary for properly functioning. So what now? If the current muddling through and procrastinating is not considered a perspective, there are only two alternatives: The dissolution of the Monetary Union and the return to national currencies on the one hand or a deepening integration based on more political regulation on the other. Hic Rhodus, hic salta.
Currencies are money and money is a social construct. The Monetary Union is thus no strait jacket as such, even though the Troika uses it as a means to harshly discipline the debtor states. One can get rid of this strait jacket though, as history has shown us with regard to national or common currencies. Germany had its fair share of experience with several currencies solely in the 20th century. There is a lesson to be learnt: Along with the currency also the political community has to be restructured. Unpolitical money only exists in 'l'Europe Tietmeyer', as Pierre Bourdieu taunted.
The dissolution of the Eurozone or a change caused by the withdrawal of one country or another, such as possibly Greece or Cyprus, and their return to a national currency would undoubtedly be a political project. It is backed by right demagogues as well as certain currents in the European Left. Such a step would be the end of the most important political venture in post-war Europe, a 'l'esprit de l'escalier', a staircase joke of history.
And this joke would not be a laughing matter, even if it is told by those who have staked everything on the socialdemocratic variety of the neoliberal card until recently. Wolfgang Streeck for instance: By the end of the 90s he was a proponent of Clinton's, Blair's and Schröder's Third Way, then a contributor to the red-green Agenda 2010. Today he feels that the defense of a national democracy and currency against the 'European Consolidation State' and the 'Completion of the Monetary Union' is the 'first available solution' for the European problems. This is but a political surrender, also regarding the consequences of his own actions. Agenda 2010 and Hartz IV have increased the German competitiveness not merely owing to high productivity but also by means of politically imposed wage cuts. The account deficits of the Mediterranean States and their subsequent accumulation of debts are the results, which are now sought to be rectified on the basis of currency depreciation and national democracy. If only Wolfgang Streeck was consistent enough to not solely demand adjustments in the debtor countries but also the same for the creditor states!
Thilo Bode also made a case for more national monetary autonomy, that is the dissolution of the Eurozone. According to him 'the core problem of the Monetary Union is [...] the insufficient productivity of the private sector in the crisis countries. Therefore they incur even more and more debts with their neighbours. [...] If the exchange rates of the crisis countries were modifiable, they could evade the impending debts through depreciation.' That's exactly what they cannot do, though, as Thilo Bode says. Their debts would have to be cancelled as always the case in the course of history when debts have become unbearable. Examples range from the debt cancellation in Solon's Athens 594 BC, the Biblical Jubilee of Debt Relief to the London Agreement on German External Debts, which bailed Germany out in 1953. Now, 60 years later, this is pointed out by Alexis Tsipras, leader of the Coalition of the Radical Left (Syriza) in Greece, to hint at the direction in which a solution for the European financial crisis could be found.
The clock of history cannot be turned back. The mistake of a monetary union without the economic basis of an 'optimum currency area' and without a common economic, finance and tax policy should not have been made in the early 90s. Today it cannot be rectified. Life punishes those who are late.
A return to national currencies would not make sense for many reasons, quite the contrary: The error of 1992 would be exceeded by new mistakes if the European Monetary Union would be dissolved in favour of national currencies. A Grexit is just the same bullshit as a Spexit or an Italexit. Quod est demonstrandum:
As trite as it sounds, first of all the rising transaction costs as a result of an increasing number of currencies within the trade relations have to be taken into account. Markets are places of monetarised exchange and one money – that is one currency – simplifies the exercise of their economic and social standardisation function in the context of market integration. Many national monies, the rate of which is determined on a highly speculative market, thus complicate financial operations – and forward transactions to avoid price losses are expensive and, given the volatility of financial markets, quite risky.
Moreover, the past decades of wild deregulation have seen a quantum leap in the field of financial operations. Only an almost negligible quantity of the daily dealings on the forex markets, which amount to more than 4000 billion U.S. dollars, is due to the business of the 'real' economy, that is trading operations and direct investment. Almost 98% of the forex market transactions obviously serve the purpose of short-term speculation on global financial markets. This speculation consequently influences the development of the exchange rate, the appreciation and depreciation of a currency. Given these facts, Thilo Bode's and Wolfgang Streeck's assumption that exchange rate fluctuations could straighten out the real economic inequalities in Europe may almost be deemed 'valiant'.
The compensatory exchange rate today is less than ever dependant on capital movements 'induced' by real dealings but relies on 'autonomous capital movements', as Heinrich von Stackelberg distinguishes. These capital movements are independent from trade and investment, however, not from the decisions of the players interested in returns. Whether these eventually turn out to match the model's calculation can be doubted.
This was one of the reasons why James Tobin suggested to 'segment' the currency areas, that is to increase the price of capital movements between them and hence make currency speculation unappealing. This can be taken as a hint that a return to national currencies would be but a half-baked idea. There would also be a need to adopt measures to control financial speculation. If financial instabilities and monetary speculation play a role in the development of exchange rates without bearing any relation to real processes (the so-called fundamentals), political regulation is the last resort.
Thirdly, the effects of autonomous capital movements on the 'competitiveness of business locations' need to be considered. With the option of currency depreciation, export chances only increase in the model world. The short-term nature of currency fluctuations, the lack of predictability and the erratic deviations of rates and interests do not provide a sound basis for the formation of economic-political-social networks of stable, non-market driven relations between market players. Here the importance of history is revealed. After decades of European integration, nevermind how insufficient it might have been in manifold respects, these pan-European networks already exist. The return to national currencies would massively conflict with this actuality.
Fourthly, the dissolution of the Eurozone would not prevent the increasing regionalisation or 'triadisation' of the world economy, which had also existed in the past – that is before the formation of the Eurozone – as a Deutsche Mark-, Dollar- and Yen-area. So after the alleged downfall of the Euro we should soon have a Dollar-area, a Deutsche Mark-Club and a BRICS-Monetary Union with the Renminbi as hegemonial currency. The notion that small currencies would be able to keep up in the geopolitics of currency competition and could solve their economic problems is naive. The stability and strength of a currency is neither primarily nor entirely determined by real economic relations, as the development of the U.S. dollar illustrates. Despite monetary turbulences and a structural deficit in trade balances and in spite of a deferred productivity and a pile of foreign debts, the USD remains a stable investment currency and defends its position as petro-currency. Apparently investors do not merely interprete monetary stability in economic terms but also with regard to politics and according to the military potency of the country of the investment currency.
Fifthly, a currency depreciation is not only conducive to exports but also increases the price of imports. This is pointed out by Greek and Cypriot economists when they refuse to withdraw from the Eurozone, as it was suggested by Paul Krugman inter alia. Given a complete dependence on oil imports, a depreciation would dramatically increase the price for the most vital import for their industries, the energy supply. Whether this increase can be compensated by means of improved export chances primarily depends on the export goods and import elasticities of the countries involved.
Finally we need to bear in mind that national currency areas are not inevitably more homogeneous than a supranational, European monetary union. A reminder would be the history of the Italian mezzogiorno, which may be seen as a result of the effects of a 'unitary mechanism'. The modernisation of the North and the underdevelopment of the South are two sides of the same coin, the 'mechanismo unico'. In the 1980s Carlo Ciampi, the head of the Italian Central Bank, rather ironically made a case for a monetary border somewhat south of Rome to improve the development opportunities of the mezzogiorno by means of a depreciation policy. The same argument was put forward in the discussion about the abolition of development obstructions in Eastern Germany and highlighted the absurdity of pursueing economic policies based on exchange rate variations.
It wouldn't have been a good idea to take away the Deutsche Mark from Eastern Germany based on economic and developmental considerations – that is 'for one's own best' –, especially after millions took the street for its introduction. This is the best proof that a currency is always a political issue and not a construction kit for building dream castles. Hence the crucial question is – which is nowadays the ideal political sphere that also is decisive for the monetary area?
Currently the global foreign exchange reserves amount to roughly 10 000 billion USD, only about 55 % of them are actually classifiable.  Approximately two thirds of these accumulated reserves are kept in USD – many of them in China – and a bit more than a quarter in Euro. The rest of them is allotted to the remaining 180 or so currencies.  This is about to change soon. The BRICS-countries, especially China, India and Brazil, will flex their muscles with regard to monetary policy. We are indeed dealing with an increasing trend towards a triad monetary system. In the face of this development the suggestion of returning to national currencies is rather timid, even if Thilo Bode aims it as a criticism at a 'dispirited Left'. This dispiritedness does indeed exist, however, for entirely different reasons than those put forward by Thilo Bode.
In the times of the Internet and global container transport, confronted with the energy and climate crises and also mindful of the conviction of scientists that humanity has now entered the Anthropocene, that is the era of making Earth's history themselves, – against this background nowadays even the European horizon seems much too narrow in many respects. The taming of predatory capitalism, the regulation of the financial markets, the creation of socially secured jobs and the transition to renewable energy are millennial-challenges; in any case they are easier to achieve in a united Europe than a shattered Europe divided by the financial crisis and the zero-sum game of raving depreciation. In other words: The renationalisation of currencies would be counter-productive given the enormous issues in other political fields.
In fact, there is no other way than to reline the prematurely created common currency with a community of fiscal and social policies. Therefore it is necessary to resuscitate ideas and notions of the 1960s, in particular Robert Mundell's concept of an 'optimum currency area' or Helmut Schmidt's 'Coronation Theory', according to which a common currency can only be the coronation of an extensive earlier economic, social and political integration process. Now this is truer than ever: Today Europe can't exist without a political regulation of the disembed financial markets, otherwise the European societies will perish in the pull of the market crises. The old project of Europe's negative integration, that is the mere liberalisation of the markets and deregulation of politics, hence has to be buried and a positive integration has to be reinforced: only in this case a political Euro can remain – or rather: eventually become – a true common currency.
Elmar Altvater is a Berlin-based economist.
First publication in German: Blätter für deutsche und internationale Politik 5/2013, p. 71-79, see: http://www.blaetter.de/archiv/jahrgaenge/2013/mai/der-politische-euro