The Euro (€) is a common and official currency used in 19 of the 28 member states of the European Union (EU). Regarded as ‘the most tangible proof of European integration,’ the Euro has been the primary component of the Economic and Monetary Union (EMU.) It should be noted that not all members of the EU use the Euro. Those countries who do make up what is commonly referred to as, the eurozone. Countries not in the eurozone (Bulgaria, Croatia, Czechia, Hungary, Poland, Romania, and Sweden) are still part of the EMU, but control their own monetary policies.
The Euro has been a major source of controversy for the economic stability of the EU. Citizens of countries with strong economies believe that they are taken advantage of, sometimes so much that they leave, while those with weaker economies feel that they have not benefited from the economic promises of the EU. Rather, these countries feel they have been duped into becoming a dumping ground for migrants from the Middle East and Africa seeking asylum in Europe.
The once glorious prospect of an economically integrated Europe has presented insurmountable global challenges for countries whose economies are not equipped to deal with them. Codependency, conflicts of interest, and uncontrollable monetary policy have become the main focus of Euro skeptics as anti-globalist and right-wing sentiments gain ground in Europe.
Probably the most disheartening, yet simple fact of this whole article, is that economic growth (2.5% GDP) among members of the eurozone remains unchanged since the Euro’s founding in 1999. Instead, a string of austerity measures and unproductive loans have lead countries to see as much as a 2.3% drop in national GDP. Non-Performaing Loan (NPL) total transaction volumes for Q4 in 2017 were €157 billion, a 42% increase from 2016. In total, the European Commission has spent over €1 trillion in bad loans, which includes 46.7% of loans in Greece, 32.1% in Cyprus, 14.6% in Portugal, averaging the EU at about a 4.4% bad loan ratio.
Not only are stronger economies on the hook because they have to pay a larger percentage of their budget as contributions to the EU, but weaker economies are often subjected to high interest rates that are harder to pay back, and even worse, make the EU no money.
The Euro is the adhesive to these obligations. Dropping the Euro would provide a beacon of economic independence in an increasingly globalizing Europe. Such a move wouldn’t make countries free from their economic duties entirely, but the threat of dropping the Euro could serve as a bargaining chip for economic negotiation within the EU – an invaluable advantage.
Conflicts of interest
While non-eurozone countries using the Crown, Kuna, Lev, Leu, or Złoty may not sport the strength of the Euro, countries like Bulgaria and Poland are growing their GDP at an average rate of 3.5% annually, compared to the 2.5% growth hailed by eurozone countries. Though only a 1% difference, it is a blow to the integrity of the eurozone, and leaves little reason for countries who feel crushed by other EU economic and social policy to stay in the eurozone.
The economic gridlock of the eurozone has a lot to do with the differences in economic structure and interest in separate countries. The EU is brand new when compared to the thousands of years over which different territories, countries and empires built their economic structures. The biggest factor in European economic variance is industrialization. Economies like that of the Netherlands were once empires, industrialized much earlier than countries with a lack of natural resources like Italy. As a result, resources are valued differently and prices vary.
GDP output is dependent on a variety of factors, and ultimately countries like Italy are not able to meet the same challenges as the Netherlands. These countries’ economies are non-copacetic with one another. As a result, inflation, interest rates, speculation, and terms of trade are thrown out of whack, making it very difficult to stabilize.
Just imagine fusing the economies of 28 countries and the monetary policy of 19 countries. Complete chaos.
Uncontrollable monetary policy
The most detrimental aspect of the Euro is that it takes away the ability of nations to control their own monetary policy. Prices are set through a system of supply and demand depending on the population’s needs and the scarcity of resources. That being said, it is necessary for countries to determine their own individual monetary policy to prevent price gauging, under supplying, and to establish a consistent credit system.
Instead, the EU sets the monetary policy for the entire bloc via the EMU. They do this through determining the interest rates across the Euro area and the quantity of money in circulation. What’s even worse is that they believe monetary policy (the Euro) is more important to stabilizing the European Macro economy than fiscal policy. This means that they hold the Euro as the most important part of their economy.
Meanwhile, excessive borrowing is impacting the value of the Euro. Due to the bad loans mentioned in the Codependency section, the EMU has had to establish pacts to further regulate when, how, and why countries borrow, stripping them of what little autonomy they had.
The obvious counter-argument is, ‘well, the Euro is a stable, strong currency – European countries have a history of weak, volatile currencies.’ To begin, the first part of this argument is undeniably false, as the Euro is not a stable currency. While its value against the dollar has held, the EU often becomes hysterical over minor economic events in a eurozone country under the auspice that the Euro’s stability could be negatively impacted.
Conversely, the strength of a currency is not the end-all be-all in a homogeneous, mature economy. Purchasing power in a country with a lack of natural resources does not need to be strong in order for a country to sustain itself. In fact, a country with a historically weak currency that adopts a stronger currency could level a population into destitution as a result of a non-cooperative monetary policy.
It seems that the promise of the Euro was based on a series of embellished promises, shallow economic forecasts, and a desirable analysis instead of a realistic one. More countries are looking to take their economies into their own hands after seeing little improvement while simultaneously being subject to other crippling EU policies. It seems that countries are no longer willing to take the risk that they once were for an integrated Europe, and instead only seek to save themselves as they begin to realize the ship they are on is the Titanic.