The euro, that artificial Funny Money used by 331 million
Europeans in17 nations — the 17th, Estonia, joined the euro just
this week — was conceived in sin and born in corruption. The New
Year brings the prospect that the sins of the European Union’s
founding fathers will be visited on its hapless citizens in the
form of financial turmoil and fiscal pain.
The original sins at the euro’s conception included
stealth, lies, and hypocrisy. That at least was consistent with the
creation of “Europe” in the 1950s, when politicians with mixed
motives recklessly signed off behind closed doors on whatever was
necessary to bring forth the European Economic Community, later
optimistically re-baptized as the European Union, a.k.a.
“Europe.”
Contrary to the organic, bottom-up growth of a real
nation, this was all done top-down with little or no democratic
consultation with Europe’s citizens. (The Brussels-based Eurocracy,
now occupying gargantuan buildings in the Belgian capital,
euphemistically calls this a mere “democratic deficit.”) But the
fact that there was no true political union, and even less
centralized economic and fiscal authority, did not deter the EU
from declaring a phony monetary union in 1991.
The pretense that this was a step to political unity was
at best wishful thinking, at worst pure hypocrisy. The unstated
reality was France’s goal of using the euro as 1) a weapon against
the dollar, and 2) a way to hobble an increasingly powerful
Deutsche Mark and soon-to-be reunified Germany before it left
France in the dust. Premier Helmut Kohl, like the great majority of
Germans, was cool to the idea on both counts. But he reluctantly
went along with the euro when President François Mitterrand
sweetened the deal with French backing for German reunification and
defense guarantees including France’s nuclear weapons.
In the land of Eurofudge, where nothing is quite what it
seems, Funny Money’s inevitable corruption began with its official
launch in 1999. Membership in the euro zone — 11 countries
initially qualified — was supposedly tied to strict budgetary
discipline: member countries’ annual deficit was limited to 3
percent, and total debt to 60 percent, of GDP. But in the absence
of any real verification, the rules were routinely
flouted.
Some southern countries like Greece flagrantly manipulated
statistics, cooked the books, and generally faked it. They and
others, like Ireland and Spain, took advantage of bountiful money
flowing from Brussels. There was also easy credit to go on spending
sprees on infrastructure and entitlements. But even in Europe,
corruption can only get you so far. When the markets called the
euro’s bluff last year, it meant crisis in Euroland.
Today Europe’s sky is dark with chickens coming home to
roost. In a defining stress test, all the European Union’s
papered-over cracks in its political, financial, and economic
structure are showing up. This could be the year when we will learn
whether a technocrat’s delight, history’s only example of an
artificial currency without a nation-state behind it, can
survive.
The Eurocracy’s hastily thrown together $1 trillion
emergency rescue fund was enough to bail out debt-ridden Greece and
Ireland — so far — but now speculators have bigger game in their
sights. That includes Portugal and Spain near term, with Belgium,
Italy, and even France as possible targets later on. EU policy
makers are bailing furiously at one summit meeting after another,
but their financial buckets are small compared with the gush of
both sovereign and banking debt. As the Wall Street
Journal put it nicely, “Greece found out it can’t pay its
creditors, Ireland thought it could but it couldn’t, Portugal and
Spain think they can, but they can’t.”
If a member state defaults, it could trigger a
Humpty-Dumpty breakup of the euro zone with unpleasant
consequences. One result, according to many scare-mongering EU
leaders, would be the end of “Europe” as we know it.
French President Nicolas Sarkozy, for one, tried to put
the fear of God in his compatriots last week during his traditional
New Year’s address to the nation. Warning against thinking the
unthinkable — i.e., any possibility of France’s dropping the euro
— he threatened that the whole jerry-built EU would come tumbling
down if the currency disappeared. “Don’t believe,” he warned in the
somber tones usually reserved for declarations of war, “those who
suggest that we should leave the euro… The end of the euro would
be the end of Europe.” For good measure, he raised the specter that
the euro’s disappearance would undo 60 years of European peace and
brotherhood.
That the EU has brought peace and love is official
Eurodogma. It is also patently false. (Precisely which war has
Brussels prevented? As for European brotherhood, try asking the
French what they really think of Germans, and vice versa.) It is
also obviously untrue that the demise of the euro would mean the
end of Europe. In the 19th century there were two European attempts
at monetary union, one among Latin countries and another in
Scandinavia. Both collapsed. But Europe, at latest report, is still
with us.
If not peace and love, what the EU has brought is
the habit of obfuscation and flagrant cheating on its own rules. In
this case, the new permanent system for rescuing member states
unable to pay their debts, the so-called European Stabilization
Mechanism, is a clear violation of the 2009 Lisbon Treaty. As the
EU’s constitution, the treaty explicitly forbids financial bailouts
of member states by each other. Normally, a change this important
in the EU’s basic governing document would require a referendum and
approval by all 27 member states. But it is being treated
officially — and falsely — as a “limited treaty change” that does
not require the consent of the citizens.
Admitting that this is a major transgression, France’s
finance minister, Christine Lagarde, is unrepentant. “We violated
all the rules because we wanted to close ranks and really rescue
the euro zone,” she says, momentarily abandoning official
Eurospeak. A group of outraged German economists is asking the
German Constitutional Court to rule on the legality of such a
violation of EU rules.
This European train wreck could be seen coming for miles.
The very idea that monetary union could be created out of thin air,
without joint fiscal and tax policies or other federal-style
control, was nonsense to many conservative observers both in Europe
and the United States. For starters, Great Britain was having none
of it and opted out of the euro zone (as did Denmark), thanks to
Margaret Thatcher. The lady knew instinctively that such a move
could only be based on a common culture, history, and traditions,
none of which “Europe” had. Her chancellor of the exchequer, Norman
Lamont, said at the time, “So long as such a divergence exists, a
move to a single currency would represent a massive leap in the
dark.”
So too America’s conservative economist Milton Friedman.
Winner of the Nobel Prize and advisor to presidents Richard Nixon
and Ronald Reagan, Friedman predicted the euro’s demise within a
decade — which, given today’s turmoil, makes him look prescient
indeed. “The euro,” he said, “has been motivated by politics, not
economics. Monetary unity imposed under unfavorable conditions will
prove a barrier to the achievement of political unity.”
Most of the EU’s citizens don’t need a PhD in economics to
know the euro was a mistake. (One notable exception: it’s a great
success with international criminals, who love 500-euro notes, much
more convenient for money laundering than $100 bills.) A
Europe-wide poll before the current crisis showed that two-thirds
of French, Italian, and Spanish citizens, and over one-half of
Germans, thought it had had a negative impact on their national
economies. Nearly half of German citizens say they would like to
drop the euro altogether and return to the mark. Many put their
money where their mouth is: today, nine years after the euro became
the official EU currency, German mattresses bulge with 13.45
billion D-marks in cash, about $9.3 billion, that they prudently
kept at home and never exchanged for euros.
