On January 1st, the euro became the common currency in twelve European countries, replacing all coins and notes in most of the European Union. How well are Europeans adjusting? In France, the country I know best, the transition has been surprisingly rapid. Politicians and the press have taken this to mean that the French were eager to embrace the euro and dump their old francs. I even heard a former General Commissioner for Central Planningsuch a bureaucrat still exists in Franceproclaim that French citizens welcomed the euro because they understood that something major was at stake.
Such thinking is typical of the French nomenklatura, who believe in collective targets, defined by the state and efficiently reached when explained to citizens eager to achieve the common good. But the reality is quite different. French citizens adopted the euro quickly, even in check writing and accounting, under penalty of law. And although people had until February 17th to spend their francs, shopkeepers were required to make change in euros and return the francs to the banks, where they were destroyed. Knowing that francs would not remain legal tender for long, people had no other choice but to dump their francs in a hurry.
Are French people happy with this compulsory change of the monetary unit? Most are notnor should they be. The advantages of the euro have been greatly oversold. For years the so-called experts claimed that the euro will facilitate international trade and promote economic stability and growth, but it is not clear that this will be the case.
Certainly, using one single currency throughout Europe, instead of several, will decrease transaction costs for travel and trade within the European Union. But travelers and traders are a minority already accustomed to shifting among currencies, so the decrease in transaction costs is not very significant. In addition, the more significant cost that the euro is claimed to reduceexchange-rate riskwas already suppressed three years ago when Euroland adopted a fixed exchange rate monetary system.
Had the eurocratsthe politicians and technocrats who designed the eurowished for a less disruptive monetary transition, they could have introduced the euro as a parallel currency circulating alongside the franc, the mark and the lira, and enjoying the same legal tender status (and other benefits) that the national currencies enjoy. This would have made the transition smooth and gradual, allowing people to gradually adapt to it according to their needs.
Instead, the eurocrats opted for shock treatment. The minority of traders who compare prices of goods from other EU countries will benefit but at great expense for the vast majority of Europeans in their evaluation of everyday goods. The transition costs of the change have been greatly underestimated by the monetary bureaucrats. In fact, the euro has been introduced in such a way that the whole process of acquiring information about monetary prices in terms of euros is lacking. Therefore, the citizens of the Euroland are mostly unable to figure out easily and spontaneously what is a price defined in euros and they have to convert prices in euros into prices in their former national currency. This is not at all a minor problem and it may last for long: As an example, although the French converted from the old franc to the new franc back in 1958, some of the French still think in old francs. And this conversion took place at the easy exchange rate of 1 new franc = 100 old francs!
Before the introduction of the euro, the euroskeptics predicted disaster because monetary policy could not be designed according to assumed national interests, while the euro-enthusiasts were predicting acceleration in economic growth and a decrease in unemployment. To be sure, both of them were wrong: By itself, the euro cannot bring such huge evils or benefits. Having always opposed monetary integration on the euro modeli.e., the coercive imposition of a monopoly moneyI deeply regret that so much attention and effort has been devoted to the introduction of the euro while failing to address the difficulties that ordinary Europeans have experienced for so long, such as over-taxation and over-regulation. And the single monetary policy will be a pretext to reinforce the centralization of economic policy decisions in Europe.
Still, doesnt the euros cloud offer some macroeconomic silver lining? The adoption of the euro, managed by a single EU monetary policy, should help to synchronize the business cycles. But this may be good or bad.
Will the conversion to the euro transform the EU into an area of economic and monetary stability, as has been repeatedly claimed? This is doubtful, as the designers of the new monetary system so lacked imagination that they merely imitated the existing monetary systems, which are national, public and hierarchical (i.e., governed by a central government bank). These systems, which spread all around the world during the 20th century, have proved to be inimical to monetary stability. Thus there is a risk that history will repeat itself and that, at some point in the future, Europeans will suffer from inflation, monetary crises, exchange controls, and so on. Such a great risk ought to be enough for the euro system not to be adopted.
Still, there are grounds for optimism. As the euros adoption suggests, Europeans are willing to try something new. And the misguided imposition of the euro is not irreversible. Perhaps some privately issued new currencies, as is proposed in the very stimulating Independent Institute book, Money and the Nation Statepossibly based on gold or perhaps using a commodity basketwill emerge to compete with the euro. And perhaps during this competitive process, Europeans will find privately issued currencies better suited for their monetary needs and leave the euro to collapse like that other great statist failure collapsed ten years ago, the USSR.
|Pascal Salin is Professor of Economics at the Université Paris-Dauphine and Advisory Board Member of The Independent Institute in Oakland, California.|