As we mark 20 years of the euro, the EU should learn from the currency’s growing pains and be more ambitious on monetary convergence.
Read the comments section of an article on the relative success or failure of the euro since it was launched in 1999, and you are left acutely aware of the division, and sometimes even bitterness, the currency manifests in people across different parts of the eurozone.
General speaking, 10 years of initial euro success – with confidence, money flow and lending increasing across the EU – was followed by the global financial crisis, eurozone survival, and the last 10 years of trying to improve the monetary union.
There have been winners and losers as a result of this mixed report card, with southern EU states, most notably Greece, bearing the brunt of the pain and reforms of the last decade. Meanwhile, northern members have sidestepped sharing the pain of this process and still set the monetary rules.
This growing division between north and south is a problem and the EU urgently needs to fix it. However, in hindsight, it is also the rather obvious consequence of monetary convergence happening by piecemeal rather than in a comprehensive and holistic way. Unfortunately, that piecemeal approach is still prevalent today.
In defence of the euro, it is only 20 years old and has been one of the most significant currency projects in modern financial history. As for the last decade, change will take time to settle and kick in across diverse European societies and systems, but a greater sense of shared benefit will eventually prevail across the eurozone.
Ultimately, the euro has been a remarkable success when you consider the size, variety and complexity of the EU’s structure, and the many challenges it faces dealing with those factors. Still, there is clearly a need for further convergence if the euro is to thrive over the long term. So, the question is whether members – democratic and sovereign nations – will allow that, and at what pace?
Everyone knows that EU integration is a sensitive and even emotional subject at the national level. Big decisions that touch on sovereignty are difficult and take time to implement. Many important policies are simply kicked into the long grass to avoid the inevitable squabble. Britain’s decision to leave the EU shows just how threatening creeping integration can be to the entire EU project.
Nonetheless, these challenges should not prevent the EU from continuing to strive for closer union. Its leadership would be wise to remember the major lesson of the euro’s growing pains over the last two decades and plough ahead with much needed convergence across banking, tax and capital markets.
This is critical for two reasons: first, it is only when there is closer and comprehensive convergence across these areas, and others, that the current sense of division can eventually start to dissipate. The euro needs to work for all members. And second, a stable euro, underpinned by a serious monetary union, is the best means of protecting the eurozone against the inevitable next financial crisis.
The EU’s leadership must be brave in its approach to convergence. Achieving this offers a solid economic bedrock for all the EU’s members. It also ensures Europe remains a competitive global financial centre instead of risking fragmentation between its various financial capitals. While domestic politics will undoubtedly clash with this supranational objective from time to time, the rewards for everyone of staying the course will be far more significant than any perceived loss of sovereignty.