The Euro

"Marsh’s approach, like Judt’s, is historical. Marsh argues that one can’t understand how the euro came about in 1999 – and I think he would argue, similarly, that one can’t anticipate what will happen next – without recalling Europe’s efforts over the course of the sixties, seventies and eighties to restore and maintain monetary stability. We have to understand the response to recent developments in that context. What I like about Marsh’s book is that, in telling this tale, he reminds us of the importance of human agency. He reminds us that actual individuals with actual lives took actual decisions to create the euro. In the absence of those individuals, things might have turned out very differently. It’s often said that with the rise of a new generation of German leaders who didn’t live through World War II and don’t share the priorities of their predecessors, completing the European house will become more difficult. That’s why the Judt and Marsh books are important. Judt gives you a sense of the deeper historical forces at work, Marsh of how those historical legacies are passed on from generation to generation. All this leads me to question whether the attitudes and actions of future European leaders will really differ from those of their predecessors. In telling his tale, Marsh emphasises two national traditions – the British and the German. He understands the UK, and he understands Germany. He tells his story by contrasting the attitudes of leaders in these two countries. This strength of his book is also its limitation, however. France features less prominently than it might. And lots of other smaller European countries that had a say in the development of the euro don’t get the attention they deserve. It’s a very heavily Anglo-German-accented account. While euroscepticism may seem like an affectation, it is really a deep-seated aspect of British culture as I see it. Britain has always had one foot in Europe and one outside, and the fact that the British economy both benefits from the single market and also suffers from the euro crisis only reinforces the feeling that Britain is attempting to ride two horses at the same time (not a comfortable position). Many Brits would prefer a minimalist Europe – a glorified free trade area – to a monetary union that created a need for fiscal union that in turn created a need for political union. So now that the euro project has gone badly wrong, there is a temptation to twist the knife."

"First of all, he’s a former colleague, and he’s long been seen as the go-to guy on anything to do with the Euro. I was fascinated to see that there is a small introduction by Paul Volcker, who was the chairman of the Federal Reserve in the US for a long time; a grand old man of global monetary policy. He says that David Marsh has been amongst the most respected and influential analysts of international monetary affairs for many years. When Volcker says something like that, it actually means something. This is actually a 2011 update of his 2009 book, which was written in the aftermath of the financial crisis of 2007-8, and the ensuing economic crisis of 2009. It hasn’t been updated, but I hope it will be to take into account the sovereign debt crises, especially of Greece and to some extent Italy. I hope the next time he returns to it that he looks at where we take it from where we are now—which is that it works OK, but that the Euro as a single currency defies gravity because it has no agreed political basis. “If you think that Brexit is taking up a lot of futile and useless time when we should be working on other things, the collapse of the Euro would be a hundred times worse.” That’s what the row with the Greeks was all about. Who controls how much credit people can use without having the collateral to go with it? My reason for choosing this book is that it is the most meticulous picture of how this great experiment of a single currency was embarked upon. David manages to report in minute detail and yet make it a cracking read. It’s all there: the personalities, the colour, who would talk to whom in public, and then what they said in private. It’s written in such a smooth way that you never feel lost or snowed under by complicated economics and too much detail. Perhaps part of my reason for choosing it is that it’s a masterpiece of the journalist’s craft: getting into a subject, getting people to talk, and then presenting it in a way that makes total sense to the reader. I also liked some of the jokes in it, like the one about the German central bank, the Bundesbank, which was the model for the European Central Bank we now have. He says, ‘The Bundesbank is like whipped cream. The more you beat it, the stiffer it gets.’ I thought that was terrific. I think so. When he starts his book, he reminds the reader—‘reminds’ is probably a polite way of saying he’s telling you something you don’t know—that the principal purpose of the Euro when it was launched was not to bring Europe closer together. It was actually to protect Europeans against the dollar, and the way that American monetary policy had yo-yoed the value of the dollar to suit American domestic politics. It left Europeans quite often as victims—basing a lot of business on the dollar, but having no control over whether it was a hard dollar or a soft dollar. That has been very disruptive to the management of European economies. Support Five Books Five Books interviews are expensive to produce. If you're enjoying this interview, please support us by donating a small amount . If the Euro were to collapse, it would create appalling chaos in Europe. It would not only be a political disaster, it would also be so complicated—deciding what to do with long-term debt that was negotiated and denominated in Euros, and would have to be rethought and re-valued. If you think that Brexit is taking up a lot of futile and useless time when we should be working on other things, the collapse of the Euro would be a hundred times worse. So I think David’s book reminds us how important the single currency is. He also makes it pretty plain that we made it up as we were going along, and that that’s really no way to run a currency. As I say, I’m really looking forward to his update of this book or, at any rate, his next book on the Euro. Well, Mr. Berlusconi thinks of going back to the lira. As far as I understand his ideas, which is not very well, he thinks it would be a good idea to have a dual-currency system, where you have the lira inside Italy and the Euro for dealing with the rest of the world. It sounds a bit half-baked to me. We have a big problem with the Euro in the sense that when it was first presented, we were all told it was going to encourage the convergence of national economies. Italy was going to become as rich as Germany, and so on and so forth. In fact, what it’s done is the opposite. It’s actually pushed economies apart. We’ve now got a divergence that is in a large part due to the Euro, or to the pressures that the Euro creates—one size doesn’t fit all. But let’s take the problems of the Mezzogiorno. I don’t think you can actually blame the Mezzogiorno’s problems on the Euro. They were always there. It’s the domestic problems, and the North-South divide, just like the North-South divide in the whole of Europe itself. These are longstanding problems. They require much more sophisticated policies than just plonking a single currency on top of them. That said, what you said, Sophie, about the convenience and the sense of pride for Europeans to have a major currency, like the dollar in terms of standing, that has been an enormously important step forward in the way that people think about Europe. As somebody like yourself, who travels quite a lot in Europe, I find it enormously helpful that I don’t have to think about going and finding the local currency in most EU countries. I just travel with the money I’ve already got in my pocket. Yes, it’s better for business-to-business dealings when you can denominate things in a single currency. That you don’t have to take currency fluctuations into account has done a lot to stimulate intra-European trade. No doubt about it. “Now we’re in the middle of a digital revolution, or perhaps the middle of the start of one. The need for updated regulations is actually increasing and accelerating.” But it does need a political solution, and it needs it really quite fast. I don’t think we can go on forever. It’s defying gravity. If you’re going to ask the Germans to finance other countries, you’ve got to have some kind of political mechanism, there has to be some sort of oversight, some sort of control over how the country that is being supported spends the money. That’s where the Greek crisis started. The Greeks used what was, in effect, almost a blank cheque in terms of the borrowings they could run up—and nobody knew where the money was going. It has to be said that, to this day, we don’t know where an awful lot of that money actually went. In a way we’re looping back to what we were talking about earlier, that what you need is a single, European democracy that somehow allows you to operate a single currency; that works a bit like the American system where, through federal mechanisms, the northern states subsidise the poorer, southern states. We need something similar in Europe. The trouble is that the European Union is ramshackle. It was created out of a free trade arrangement and then grew a bit here and a bit there. Every ten years or so, we would tack on a new bit. We moved from having a delegated European parliament to an elected one. We changed the way that votes are done in the council of ministers, which is basically a form of legislature. But none of them are a coherent system of the sort we all have nationally. What is required is a total rethink, a hugely ambitious and radical change. “The principal purpose of the Euro when it was launched was not to bring Europe closer together. It was actually to protect Europeans against the dollar” Now I personally have solutions, but nobody is listening. My solutions are, in the first place, yes, you have to have a European government. You can make the commission the executive, but you need to have a commission that is empowered and allowed to be in office, or can be kicked out of office by parliament, just as we have in any parliamentary democracy. I think you actually need to have European-level political parties, which is a huge leap. And I think you also have to have a bicameral parliament, which most national arrangements have. You need to create another house, a senate, in which I personally would put regional representatives, because we’ve got this growing problem of Scotland and Catalonia and so on. The regions need to feel that they’re close to decisions and have a hand in them. You need to cut the Gordian knot of complicated national democracies and add a European dimension. We’re talking about a huge change in the way we would run our affairs. But without that, it’s hard to see how a single currency could be acceptable to one and all—and especially to the creditor nations. I keep saying to people in Germany, ‘Look, you know as well as I do: you can’t get away from your neighbours and having poor neighbours is very dangerous. You need to make your neighbours rich. That way we all benefit.’ Having a zero-sum, winners-and-losers approach to European politics isn’t clever. You actually need to make sure that all Europeans are converging economically, becoming part of the same political culture and so on. But as I listen to myself, I can hear people saying, ‘There he goes again, the Euro loony speaks.’"