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One-size euro doesn’t fit all

In a few months, Europeans will mark — definitely not celebrate — the 10th anniversary of the euro, the common European currency. Ten years ago, back before anyone thought Greek debt levels or Portugal's fiscal balance could become subjects of great interest for European voters, I watched as the legendary Dutch currency, the guilder, went out of circulation.

Through the smoky air in Amsterdam's cafes I saw Dutch men and women sipping cappuccinos while excitedly examining the unfamiliar new coins. At local banks, people stood in long lines to exchange guilders for euros, bidding goodbye, as people throughout the continent did, to the currency that had become a symbol of their countries after hundreds of years in circulation.

The currencies had become tangible links with history: the Greek drachma, the oldest European currency, had been the coin of the realm in the days of Alexander the Great. The French franc had just celebrated its 641st birthday. Then there were the mighty German mark, the proud Spanish peseta, or the Portuguese escudo, first minted in 1523.

On the first day of 2002, people held up their euros to the light, discussing the security markings and concurring, almost to a person, that the new paper money lacked the beauty that had characterized the old ones.

But it was water under the canal bridge. The deal was done.

Back then, amid predictions from officials that the euro would bring nothing but prosperity, some of us wondered aloud what would happen if separate regions of the European economy moved in different directions, growing at different rates, and requiring opposing monetary policies. What if one country experienced inflation and another recession; one calling for higher, the other for lower interest rates?

Today, many are examining the currency again, wondering if it is fit to survive after the debt crisis that is rocking the eurozone.

For years the plan seemed to work well, as more countries joined the eurozone, appearing to follow its strict fiscal rules, including budget deficits of no more than 3 percent. The euro would help erase borders, facilitate trade, make travel easier. Under the surface, the numbers didn't reflect reality, and danger lurked behind a forthcoming economic slowdown. Eventually, a deep recession brought out the truth about giant deficits, unsustainable expenditures and faulty tax collections.

Now, Greeks by the hundreds of thousands are angrily protesting painful austerity measures demanded by the wealthier countries in Europe. As a condition for yet another bailout, Germany, France and the European bank are demanding cuts to the bone, designed to save the Greek economy and prevent an economic unraveling of the entire eurozone.

But it's not just the Greeks who are angry. Citizens of the more affluent, fiscally conservative Northern European countries are fed up with pouring billions of their tax euros into the coffers of Southern European states they see as irresponsible, spending too much, retiring too early, and not saving enough. The euro could end up splitting in two, if not going away altogether.

If the euro did not exist, the Greeks today would not be facing this anguish. Instead of cuts to satisfy Brussels, Berlin and Paris, the government in Athens would sharply devalue the drachma.

Eventually, the answer to the eurozone's problems may lie in shrinking the union, preserving a common currency for countries that have more in common than a shared side of the ocean, perhaps creating a southern euro and a northern euro.

A decade ago, watching the Dutch happily playing with their new coins, I wrote, "The sense of shared excitement will (turn into) a reassessment of this great monetary adventure on the day when one country's medicine turns out to be its neighbors' poison."

There will come a day, I wrote back then, when European leaders "will find it difficult to craft a policy that helps one country without hurting the other. What then? For now, everyone is focused on the new coins jingling in their pockets. The real test will come later. Until that day, it may be a good idea to hold on to some of those francs, drachmas and guilders, even if the cappuccino is priced in euros."

The day of the test has come, almost exactly a decade after the euro was launched.

© 2011 McClatchy-Tribune Information Services

One-size euro doesn’t fit all 07/03/11 [Last modified: Sunday, July 3, 2011 5:30am]

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