Is the Euro Ending or Beginning?

BRUSSELS – When the architects of the euro started drawing up plans for its creation in the late 1980’s, economists warned them that a viable monetary union required more than an independent central bank and a framework for budgetary discipline. Study after study emphasized asymmetries within the future common-currency area, the possible inadequacy of a one-size-fits-all monetary policy, the weakness of adjustment channels in the absence of cross-border labor mobility, and the need for some sort of fiscal union involving insurance-type mechanisms to assist countries in trouble.

Beyond economics, many observers noted that European Union citizens would accept tight monetary bonds only if they were participating in a shared political community. The former president of the Bundesbank, Hans Tietmeyer, liked to quote a medieval French philosopher, Nicolas Oresme, who wrote that money does not belong to the prince, but to the community. The question was, which political community would support the euro?

Some of these warnings were inspired by deep-seated doubts about European monetary unification. But others merely wanted to emphasize that Europeans needed a better-equipped and stronger vessel for the journey that they were contemplating. Their message was simple: national governments must make their economies fit for the strictures of monetary union; the euro must be supported by deeper economic integration; and a common currency needs political legitimacy – that is, a polity.

In the end, the leaders at that time – especially German Chancellor Helmut Kohl and French President François Mitterrand and his successor, Jacques Chirac – set forth to sea in a light vessel. On the economic front, they agreed on only a bare-bones Economic and Monetary Union built around monetary rectitude and an unenforceable promise of fiscal discipline. On the political front, they did not agree at all, so the creation of a European polity remained stillborn.