New Documents Shine Light on Euro Birth Defects

It was shortly before his departure to Brussels when the chancellor was overpowered by sheer magnitude of the moment. Helmut Kohl said that the “weight of history” would become palpable on that weekend; the resolution to establish the monetary union, was a reason for “joyful celebration.” Soon afterwards, on May 2, 1998, Kohl and his counterparts reached a momentous decision. 11 countries were to become part of the new European currency, including Germany, France, Benelux countries and Italy. Now, 14 years later, the weight of history has indeed become extraordinary. But no one is in the mood to celebrate anymore. In fact, the mood was downright somber when current Chancellor Angela Merkel met with her Italian counterpart Mario Monti in Rome 6 weeks ago. Even as the markets were already prematurely celebrating the end of the euro crisis, the chancellor warned: “Europe hasn’t turned the corner yet”. She also noted that new challenges would constantly emerge in the coming years. Her host conceded that his country had not even overcome the most critical phase yet, and that the fight to save the currency remained an “ongoing challenge”. It didn’t take long for the two leaders’ concerns to prove justified. Spanish economy has continued its decline, interest rates for southern European government bonds are rising once again, election results in both France and Greece have shown that citizens are tired of austerity programs. In short, no one can be certain that the monetary union will survive in the long term. Many of the euro’s problems can be traced to its birth defects. For political reasons, countries were included that weren’t ready at the time. Furthermore, a common currency cannot survive on the long term if it is not backed by a political union. Even as the euro was being born, many experts warned that currency union members didn’t belong together. But it wasn’t just the experts. Documents from Kohl administration, kept confidential until now, indicate that euro’s founding fathers were well aware of its deficits. And that they pushed ahead with the project regardless. In response to a request by SPIEGEL, German government has, for the first time, released hundreds of pages of documents from 1994 to 1998 on the introduction of the euro and the inclusion of Italy in the eurozone. They include reports from German embassy in Rome, internal government memos and letters, and hand-written minutes of the chancellor’s meetings. The documents prove what was only assumed until now: Italy should never have been accepted into the common currency zone. Decision to invite Rome to join was based almost exclusively on political considerations at the expense of economic criteria. It also created a precedent for a much bigger mistake two years later, namely Greece’s acceptance into eurozone. Instead of waiting until the economic requirements for a common currency were met, Kohl wanted to demonstrate that Germany, even after its reunification, remained profoundly European in its orientation. He even referred to the new currency as a “bit of a peace guarantee”. Of course, financial data doesn’t play much of a role when it comes to war and peace. Italy became a perfect example of the steadfast belief of politicians that economic development would eventually conform to the visions of national leaders. However, Kohl administration cannot plead ignorance. In fact, documents show that it was extremely well informed about state of Italy’s finances. Many austerity measures were merely window dressing, either they were accounting tricks or were immediately dialed back when the political pressure subsided. It was a paradoxical situation. While Kohl pushed through common currency against all resistance, his experts essentially confirmed the assessment of Gerhard Schröder, center-left Social Democratic Party candidate for the Chancellery at the time. Schröder called the euro a “sickly premature baby” (…..)

Link: http://www.spiegel.de/international/europe/euro-struggles-can-be-traced-to-origins-of-common-currency-a-831842.html 

Acerca de ignaciocovelo
Consultor Internacional

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