Crisis gatecrashes 10th birthday of euro banknotes, coins

26th December 2011, Comments 0 comments

"It's my party and I'll cry if I want to", goes a pop song from the 1960s.

And as Europe celebrates the 10th anniversary of the launch of euro banknotes and coins, there must be a great many of the more than 300 million of its citizens who share the single currency who feel like doing just that.

In the decade since the euro replaced their treasured national currencies, there can be few people who have not complained at one time or another that the euro has pushed up prices in every area of their lives.

Now, with the long-running debt crisis threatening to plunge even the wealthiest eurozone states into a deep recession or even a depression, there are a great many who, secretly or openly, clamour for a return of the deutschmark, the franc or the lira.

As a currency, the euro is actually 13 years old not 10: it became the official unit of transaction on the financial markets for 11 countries in 1999.

But it was not until January 1, 2002, that the virtual currency became a physical reality for Europeans, with the launch of euro banknotes and coins in 12 countries.

By mid-2011, 14.2 billion notes and 95.6 billion coins worth a total 870 billion euros were in circulation in the euro area, since expanded to 17 countries and 332 million citizens, according to data compiled by the institution that manages the single currency, the European Central Bank.

In retrospect, the euphoria that greeted the birth of the world's number-two currency 10 years ago may -- to many -- sound a little hollow.

Policymakers, bankers and financiers insist a common currency brings only advantages.

It "increases price transparency, eliminates currency exchange costs, oils the wheels of the European economy, facilitates international trade and gives the EU a more powerful voice in the world," proclaims the European Commission on its website.

Furthermore, the euro "gives the EU's citizens a tangible symbol of their European identity," it insists.

But despite its clear advantages for travellers, "consumers have never really warmed to the euro. They've never been able to shake off the feeling that it has led to higher prices," said Andre Sapir, economist at the Brussels-based think tank Bruegel.

Of course, the official statistics tell a different story: the ECB has succeeded in keeping area-wide inflation down to an annual average 2.0 percent since 1999.

But the basket of goods and services monitored by statisticians when calculating developments in the cost of living are not necessarily those which consumers tend to focus on when they think about rising prices. Hence the discrepancy between "perceived" and "official" rates of inflation.

People's sense of a European identity has also taken a battering as a result of the debt crisis and interminable political wrangling, unsuccessful so far, to find a solution.

Germans huff and puff over the perceived profligacy of the Greeks or Italians, while the French seem increasingly wary of the dominance of their neighbour across the Rhine.

"No plan B"

By contrast, companies are more enthusiastic about the euro, particularly in Germany, where the mighty automobile industry has saved an estimated 300-500 million euros each year in transaction costs since the launch of the common currency, according to Bankhaus Metzler analyst Juergen Pieper.

Bruegel's Sapir countered that the euro was simply "one factor among others" that has helped better integrate the European economy, along with the Maastricht Treaty on economic convergence, the opening of borders under the Schengen treaty and the eastwards expansion of the EU.

"Everything seemed to be going along just nicely until the financial crisis came along and shone the spotlight on the institutional shortcomings of the eurozone," said Philip Whyte, senior research fellow at the Centre for European Reform, a London-based think tank.

A lack of area-wide fiscal integration and the absence of a common banking supervision fuelled the imbalances in the financial system.

The low interest rates that monetary union brought with it for southern Europe led governments, businesses and households to take on increasingly unmanageable burdens of debt and everyone, including the northern states, underestimated the dangers, Whyte said.

At a summit in December, eurozone states agreed to anchor fiscal discipline in European treaties but still shied away from going down the path of federalism.

No one at this stage is seriously contemplating a return to the old national currencies, even if nostalgia seems to be growing, particularly in Germany where people were fiercely proud of the mighty deutschmark, symbol of the country's post-war economic miracle.

A collapse of the euro would certainly be catastrophic for European banks because it would lead to a sharp depreciation in the currencies of southern Europe, where banks hold huge amounts of debt.

Germany would be hit too, because its currency would likely rise sharply, throttling demand for its all-important exports, and that could kill jobs.

But nothing like that is on the cards for now, said Bundesbank President Jens Weidmann who recently quipped: "There's no plan B. There's no money printing press in the Bundesbank's cellars."


© 2011 AFP

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