Skip to comments.Is Europe's passion for the euro fading?
Posted on 06/07/2005 1:55:40 AM PDT by RWR8189
The euro has its sceptics across Europe's heartlands
It was an idea that could barely be whispered inside Europe's corridors of power - might the European Union lose its appetite for the euro?
Launched amid much fanfare in 1999, the single currency was a symbol of European unity, a sign of the continent's re-emergence on the world stage and a challenge to the hegemony of the US dollar.
Six years on, with slow growth and high unemployment bedevilling the economies of some of the euro's most powerful supporters, the whispers of doubt are beginning to grow louder.
Leading politicians in Berlin have expressed concern that the tight rules governing the euro are strangling Germany's economy, by far the biggest in the 12-nation eurozone.
The country's finance minister and central bank president reportedly attended a meeting where the "collapse" of European Monetary Union was discussed.
Meanwhile, a senior member of Italy's coalition government has openly demanded a referendum which would call for the abolition of the euro and the reintroduction of the Italian lira.
All this is thrown into sharp relief by the "No" vote delivered by voters in France and the Netherlands against the EU constitution.
Shortly after the Dutch rejection on Wednesday, the euro sank to an eight-month low against the dollar of $1.2158.
So is Europe's great experiment in monetary union running out of steam?
German Economy Minister Wolfgang Clements lashed out at the euro on Thursday, claiming the currency union was stifling Germany's already stagnant economy.
In particular, he criticised the level at which eurozone interest rates were being held, saying they took too little account of Germany's needs.
The European Central Bank decided to keep rates on hold at 2% for the 24th month running on Thursday, but many economists believe Germany's economy needs a level closer to 1%.
"The European-wide interest rate does not take enough account for my taste of Germany's contribution to the rest of Europe," Mr Clements said.
His comments came little more than a day after a politically explosive report suggested Germany's government was planning to blame the euro for the country's economic weakness.
Reports suggest Germany is distancing itself from the euro
Stern magazine said finance minister Hans Eichel and Bundesbank president Axel Weber had been present at a meeting where the "collapse" of monetary union was discussed.
Both men were quick to deny that they had personally contributed to any discussion of currency union break-up. But the mere presence of two of Europe's most powerful finance officials at such a discussion sent nervous ripples through the world's currency markets.
Stern also published a survey suggesting 56% of Germans wanted to go back to the Deutschmark.
Germany is not alone among the eurozone's major economies to be showing some political restlessness about the euro.
Italian Welfare Minister Roberto Maroni on Friday called for a referendum to decide whether his country should ditch the euro and revert to the lira.
Although a member of the euro-sceptic Northern League party, Mr Maroni's views could generate support among Italians unhappy at high prices which many blame on the introduction of the euro.
Still, despite the growing discontent, the break-up of the monetary union is a subject most of Europe's leaders are keen to avoid.
Daily bread: is Italy's love affair with the euro a flash in the pan?
The huge political and economic costs alone would be enough to deter most governments.
Posturing against the euro in Germany and Italy may also be as much about national politics as concern over Europe's wider destiny.
Germany's ruling Social Democrats (SPD), who have been heavily criticised for their running of the economy, are likely to face a general election this year. Italy, meanwhile, has seen its economy tip into recession.
And despite the grumblings, the official view from Germany is still upbeat.
"Finance Minister Eichel and Bundesbank President Weber see the euro as a unique success story and an important step in securing the future of Europe," the Bundesbank has said.
Most experts agree that the euro's recent downward tumble against the dollar owes far more to interest rate hikes in the US than to the crisis currently engulfing the European Constitution.
The euro remains comfortably above its launch value against the dollar, while its recent decline on the currency markets will come as welcome news for exporters in the eurozone.
The euro may be down but for now, at least, it's not out.
the fault, dear Brutus, lies not in our stars, but in ourselves
It ain't the euro, or the Americans, or the Jews or anything else but their own laziness and dependency on government largesse which is crippling Europe. Blaming the euro is insane.
I was in Spain recently and noticed that people still think and talk in pesatas. What particularly struck me was that some banks' ATMs dole out money in odd multiples (ie not 20,50 or 100 euros, but to correspond with 5,000 and 10,000 pesatas).
I am really starting to be convinced that the euro is doomed.
I think the only way the Euro could survive is if the central bank reformed to become more responsive, but I don't see any sign of it.
so if the ECB cut rates from 2.00% to 1.75%, then suddenly the pension crisis, the total lack of labor market flexibility, the over-regulation, the sloth of the average European worker would suddenly reverse. No way. The problems are so much deeper than the currency or the central bank
Suicide prevention strategy.
I take your point but how can Germany even begin to address its systemic problems without control of its own fiscal policy?
The Eruo hasn't fallen nearly enough yet. It has about another 35 cents to the dollar to go. Why it hasn't dropped further is ridiculous.
It will be interesting to see how low it must go before the towel is thrown in.
They have control of their fiscal policy, the ECB runs monetary policy, like the Fed in the US. Fiscal policy - i.e. taxes and spending decisions - would be a very good place for the Germans to start reforming. They have to cut benefits for the middle class much much more. 40% of the German voters receive money from the state! This is the problem. Interest rates are incredibly low in Germany. High interest rates cannot be blamed for Germany's economic problems, or Italy's or France's.
well, the Euro is higher now than when it when it was launched, so the markets must see some problems with the dollar as well. I agree though, that the Euro should and will decline in value against the dollar.
I agree that Germany's problems are deep-seated but was trying to make the point that without the lever of an indegenous monetary policy the new German government is going to find it even more difficult to implement the structural reforms needed to re-vitalise the economy.
but you think rates need to be lower than 2% at the front end and 3.2% for ten year bonds? These are the lowest rates in the post war period. Interest rates cannot help Germany, only confidence can, and the reason for the lack of confidence in my opinion is that the public, at least those with money to spend realistically see no way out of the budget crisis except sharply rising tax rates some time in the future, and so they save and save instead of spending or investing. That's why interest rates are so low, everyone is buying bonds.
if the EU breaks up, the Euro vanishes, for sure, but the EU is nowhere anything like close to breaking up. People are really misunderstanding this vote on the constitution last week, as if Texas had voted to no longer adhere to the US Constitution. Its nothing remotely like that. Europe has huge problems, but the EU didn't cause them, nor the ECB. Their problems are caused by their voters and citizens who are addicted to government handouts, and who revile anyone who achieves material success. Sooner or later, if they don't fix this, then it all will blow up, I agree, but they will blame the Jews and the Americans and the Capitalist Locusts --- anyone that is, but themselves.
Well, they might want to put them up at some point in the future!
But, yes, I agree with you.
THe US rates were much higher then, as they go back up the euro will fall further. This is not necessarily a good thing for us. A long period of parity would be the best for the US. If the EUro goes well below the dollar for a prolonged period, it will hurt American manufacturers.
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