By Victor Lee, CEO and co-Founder, TradePost USA
With the current clash of nationalism vs. globalism and the impending chaos of Brexit, Euro Tragedy (Oxford University Press, 2018) illuminates the many underlying social, political, economic, and yes, human, factors that can result in nations finding themselves in intractable, seemingly irreversible circumstances – all as the result of ostensibly good intentions. In these situations, it may seem that countries cannot maintain the status quo, yet cannot move forward, backwards or sideways, and no clear, let alone good and workable, solutions exist. This may be where we find ourselves in contemplating the fate of the Euro and the larger European experiment.
Euro Tragedy recounts the history of the Euro, the common currency of the European Union, which replaced national currencies such as the French franc, the Deutschmark and the Italian lira. The initial objective of this union of monetary policy was to stimulate economic growth among the EU countries. The long-term objective, was for the common currency and monetary policy to move the EU along the path towards permanent peace through political union, although neither was the term fully defined by its proponents (“The United States of Europe”?) nor was there any sort of process or road map laid out to reach that ill-defined objective.
Author Ashoka Mody, a visiting professor at Princeton University and a former senior official of the International Monetary Fund, lays out the multitude of foibles that resulted in an entire continent being saddled with an outcome that very few people – citizens, politicians or even economists – wanted, yet one that has impacts far beyond the borders of the EU. Furthermore, he clearly sets out themes that resonate in the current conflicts of national sovereignty vs. multi-lateral institutions:
- Decisions made by politicians without the input, let alone participation, of the citizenry – Germany’s decision to abandon its beloved Deutsche Mark was made by the Bundestag, rather than being submitted to a popular vote, likely due to the trepidation of German politicians at putting such as a volatile issue on the ballot after a French referendum barely squeaked through to victory among the Gallic electorate.
- Concomitant failure to explain the benefits of a common currency (of which Mody argues that there are precious few) or acknowledge its risks, which were well-known at the time. Although its proponents argued that a common currency would help the widely varying economies of the member countries grow together through economic convergence, the opposite has happened, as expected by the experts: a currency shared by countries with widely varying economic strengths has resulted in the stronger countries getting stronger and the weaker countries getting weaker.
- Empty political promises that were inevitably broken with far-reaching consequences – especially that the stronger nations such as Germany would never have to support the weaker members, such as Greece, although that has now become the apparent standard operating procedure of the EU.
- Further alienation and distrust among the mass of the population and the political and economic elites – not only has the Euro exacerbated the division between countries, much of the negative impact within countries has been borne by the working and middle classes, while the so-called elites who foisted this experiment upon them have been able to largely avoid its consequences. This disparate impact has further weakened the political bonds between those who make the decisions and the population that suffers their impacts – intended and unintended.
Mody writes in a narrative style that is easily accessible to a reader who would otherwise expect to find a history of monetary policy mind-numbingly dull (yours truly). He especially focuses on the individuals involved in the decisions, with an emphasis on the wide gulf between what they were promising – economic growth – and what was actually driving them – re-election and long-lasting political legacy as the (exclusively) men who would create a unified Europe. Unfortunately, as Mody chronicles all too clearly, they may have achieved the latter goal, but not in a way that they intended and seemingly not in a way that benefits their countries, citizenry and economies, let alone those of the global economy. We are all likely to pay the price.