Efficiency and Justice in the Industrial World: V. 2: The Uneasy Success of Postwar Europe by Dusan Pokorny

Author:Dusan Pokorny [Pokorny, Dusan]
Language: eng
Format: epub
Tags: Public Policy, Political Science, General
ISBN: 9781315480596
Google: NbYYDQAAQBAJ
Goodreads: 32206854
Publisher: Routledge
Published: 2016-09-16T00:00:00+00:00

The Conditions, the Choices

To conclude, let me sum up the moral of the story.

The Union needs the euro to counterbalance the weight and power of the giant economies of the United States and Japan—one of which already is the center of a trading bloc of its own, while the other is likely to occupy a similar position in the near future.

There are, moreover, strong internal reasons for not allowing the effort to collapse midway. If that happened, there would be a “tremendous flow of funds into German stocks and bonds” and into those of the other traditionally strong-currency states such as the Netherlands and Belgium. The losers are easy to divine: France, Italy, Spain, and probably Sweden.97 The result would be a sharp division of the Union into the strong member-states and the weak, a manifest separation of the rich from the poor. This time the blame could not be laid at the markets’ door. The responsibility would be the Union’s own. Therefore, the breach would be all the more difficult to repair.

Thus far, the case for the EMU is convincing. In addition to what has already been said, replacement of national currencies by the euro would render currency speculation within the EU’s realm impossible. The global monetary system would become more transparent. To this extent, the power of financial markets would recede. But it would not do to reckon without the host—that is, without taking into account the conditions imposed on the transition.

The harsh convergence criteria—the price that the rest of the Community had to pay for Germany’s assent to the eventual demise of the mark—were in the last months of 1995 confronted with equally harsh economic realities. The Union’s two largest economies—those of Germany and France—were stagnating. In Germany, forecasts of economic growth for 1996 had to be revised downward: from 1.8 to 1 percent.98 In 1995, the rate of growth had been no more than 1.9 percent. As a result, the country’s budget deficit for 1995 amounted to 3.6 percent of the GDP—more than the convergence criteria permitted. In France, the forecast of economic growth in 1996 had to be reduced from 2.8 percent to 1.7 percent.99 The effect would be to wipe out almost all the deficit reductions that had been promised. As a consequence, the deficit would probably be above 4 percent of the GDP—that is, above the level originally forecast. Italy, the EU’s third largest economy, had moved only very, very slowly toward meeting the criteria,100 and a slowdown of the economy made a difficult situation even more so. (As for fourth-place Britain, she had been inimical to the enterprise from the start.)

One can hardly wonder that, under these conditions, public opinion in Europe was turning against the euro to be. This is, at least, what was observed on the surface. On inspection, though, it transpired that the protest was against the conditions imposed on the transition process. In the rest of the Union, Germany was blamed for having insisted on convergence criteria that would cause undue hardship in other countries.

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