On 1 January 1999, the euro was introduced to the international financial market. Three years later, on 1 January 2002, it was formally launched and entered into circulation. Thus, on 1 January 2012, albeit like a child on a sick bed in a hospital, the currency celebrates its tenth birthday anniversary. It is probably one of those anniversaries that might pass unnoticed. That is because these days, not many people outside the Eurozone want to be associated with the euro, talk less of wishing it a happy birthday!
Some fourteen years ago, in preparing for the introduction of the euro, the general directorate responsible for consumer affairs of the European Commission (the executive arm) of the EU launched a competition among school kids in the 11 to 15 age-group. The idea was to enlighten the kids, use them as propagation agents on the euro currency project while at the same time tapping on their fresh minds for new and original ideas. While the contest was opened to schools and youth groups in all the then 15 member states, most of the entries came from those that were soon to replace their national currency with the euro.
Being charged with coordinating this competition in one of the countries, one thing that struck me most was the passion shown by the young people at that impressionable age, not just for the currency itself, but for the whole idea of Europe, and its integration. There was something surreal about it all – some kind of artificiality. It was obvious from the kids’ response that the issue was not just that of a new (common) currency. There was a lot more in the air – a form of “spirit of Europe”. Most of the entries had more on issues such as integration, peace, cooperation, understanding, etc built into them; The sort of thing one would not normally, or even necessarily associate with the introduction of a new currency. In fact, the winning entry at the EU-level for that contest had, possibly just 25% of propagating the euro and 75% of that spirit of Europe.
On 1 January 1999, the euro was introduced to the international financial market. Three years later, on 1 January 2002, it was formally launched and entered into circulation. Thus, on 1 January 2012, albeit like a child on a sick bed in a hospital, the currency celebrates its tenth birthday anniversary. It is probably one of those anniversaries that might pass unnoticed. That is because these days, not many people outside the Eurozone want to be associated with the euro, talk less of wishing it a happy birthday! The “happy” element that was so enthusiastically on display by those kids, some 14 years ago, seemed to have disappeared. They, today, range in age between 25 and 29 years, and are obviously now faced with the reality of the euro and the financial market within which it operates.
The euro was not a bad idea. It was conceived as one of the most visible tools of European integration by those visionaries who had felt at the time that they had the end-game clearly defined.
Report of the European Council meeting in Luxembourg of December 1997 spelt out the sentiment by stating in its introductory part, “….we see the dawn of a new era, finally putting an end to the divisions of the past. Extending the European integration model to encompass the whole of the continent is a pledge of future stability and prosperity….”
Good intention. Yet, as relates to the euro, it is clear today that even though the intention was noble, the euro which was meant to be the tool for financial and economic integration was badly conceived – some might say, by a combination of gross professional negligence (or incompetence) on the part of the technocrats and the failure of the political leaders to allow sound economic and financial reasoning to play a deserved part in their decision-making and subsequent actions.
The media is awash with hundreds of reasons why the euro has, today, found itself on a life-support machine. But this situation has not come as a surprise to many who had warned of the dangers ahead. It is like a medical expert warning a pregnant woman to moderate her excessively unhealthy life-style of cocktail of alcohol, smoking, drugs etc, but whose advice was ignored by her because she felt she knew better, or that such rules did not apply to her. Eventually, she ended up as a mother of a badly deformed child.
Eurozone leaders indeed set rules in the so-called stability and growth pact prior to the launching of the currency, agreeing not to borrow more than 3% of their GDPs. They all largely broke this rule and lived beyond their means. As interest rates fell across the zone, indebtedness grew rapidly leading to an artificial boom which was spurred on by debt – thus amounting to living in a fool’s paradise. Private sector indebtedness reached an unsustainable level especially in the southern countries – close to three times the GDP in one of the worst of them.
As a consequence of the boom, wages were driven to such levels as to make most of the economies very uncompetitive in terms of their productivity. Such is the situation today that unemployment in some of these countries has reached a level that would have been unimaginable some years back. Getting that down, is a daunting and almost impossible task, especially when cuts are more or less the only prescriptions on offer. And right in the eye of the storm itself is their common currency.
No currency in recorded history has faced such concerted and sometimes vicious attacks like the euro has. None has been subjected to so much pressure and ridicule from economic, financial and political circles at such a global scale like the euro has. No currency has been placed in such a difficult, almost impossible straightjacket with so limited room for manoeuvre. And, none could be expected to survive this pressure, especially granted the political and financial cost of the radical surgical operations needed to save its life. This has made some rational-thinking experts and analysts to call on undertakers to get ready for the funeral of the euro in 2012.
But such experts do not fully understand the force behind the single currency. Anyone who is predicting the death of the euro is bound to be proved wrong. These predictions are based on the assumption that the euro is like any other currency which has to respect the laws of sound fiscal and financial economics. Yes, the euro does absolutely have to respect these laws. But it does not die simply because it has failed to do so over a certain period of time.
Remember how the kids who took part in the EU contest had portrayed a solid element of the spirit of Europe? Surreal? Yes. But 14 years later, that same spirit has not died. And that unseen element is what keeps the euro afloat today, despite all its problems.
The next few days should witness a new bout of anti-euro press campaign. A number of very unscientific “surveys” which are totally void of any credible statistical methodological base, coupled with sound-bite type interviews of hand-picked individuals who are unhappy with the currency will be on the menu sheet marking this tenth year anniversary. The press would find that although people are unhappy with the state of the euro, most do not want to go back to the old currency. The press does not understand the spirit of Europe. So, the simplistic explanation would be that Europeans stick to the single currency because they fear the chaos of going back to the old system. That indeed is a very convenient explanation, except that it is simply untrue. That crap conclusion plays down the intelligence of the reading public, but fits the agenda of the press very neatly.
When some of the core leaders in the Eurozone make public statements saying that abandoning the euro is out of the question, financial economists simply laugh it off. They feel they know better. But that is because they do not understand, and cannot figure out the invisible hand in the spirit of Europe which makes the euro, look like a floating object that defies the law of gravity. This is one concept that neither Dow Jones nor Wall Street can understand. Nobel Prize winners in Economics who command rock-star-like followings, sitting far away and writing on Europe, do not get it either. This is something that sovereign debt rating agencies have not factored into their methodologies. It is something that the Fleet Street crew especially on the anti-Europe side would have great difficulties understanding or coming to terms with. They do not live it, and do not get it.
Welcome to Neuroeconomics 101 which defies all logics, and which makes those who even mention it, not only look and sound ridiculous, but appear brainless and living in a dream-world as well. Watch as financial economists rubbish and dismiss this as lots of words without intellectual content.
In his book titled Foundations of Neuroeconomic Analysis – Paul Glimcher, professor at the Department of Economics of New York University explains the concepts which link the working of the brain and brain structures to decision-making. His work in this uncharted area of Economics makes most of his “intelligent” colleagues to ridicule him, the same way as some might wish to ridicule this article. They still live in the era of Paul Samuelson and John Maynard Keynes. For them, economic theories are simply based on the assumption that individuals and governments behave rationally when making decisions faced with economic and financial factors.
Just as it took the likes of Steve Jobs and Bill Gates to fully understand and take IT out of “conventional” wisdom realm, it takes the work of the likes of Paul Glimcher and Robert Shiller of Yale University to explain concepts such as that of the spirit of Europe as it affects decision-making within the Eurozone. Neither Samuelson nor Keynes with their vast work on Economic theories could explain why people who are in financial problems blamed mostly on a currency would insist on keeping the same currency alive. Nor why a country outside the troubled zone would wish to become a part of it. Interestingly, major marketing and advertising agencies are now turning to Neuroeconomics to better understand the role of brain cells and structures rather than just “conventional” rationality in their clients and consumers decision-making process.
The vision of a better Europe for its people is something that sits very deeply in the heart of many in continental Europe. It is not a concept that is easily digestible in the Anglo-Saxon world. But it is real, and it is the unseen element of the spirit of Europe. It was what the Luxembourg European Council of December 1997 had in mind when it claimed “….we see the dawn of a new era…..” That would have offended someone whose focus is on preserving national identities. Yet, this is more than anything else, the greatest asset that the euro currently has. It is the main reason why a currency could be facing such a difficult time, and yet has new countries aspiring to join in. Call it dogmatic and foolish pride, but it is this reason why those countries in the Eurozone do not simply cut their losses and ditch the currency. Without the spirit of Europe, one could very accurately refer to countries wishing to jump into a sinking ship as simply out of their senses. As it happens, this is exactly the sort of concept that Neuroeconomics attempts to explain.
Economic and financial forces might cut the wings of the euro in the coming years. As an extreme solution, it may even have to downsize to the original 6 founding economies. There is no doubt of more troubles in store in 2012. There will be more press, political and financial pressure on it, just as the economies of most of the Eurozone countries will suffer more pains in the next few years. No matter how hard the leaders try, things are set to get worse in several countries before they start to get better. Unfounded rumours will fly around of some countries preparing the ground to jump ship as part of their plan B. The press will play on the intelligence of the public on the issue of the single currency. Yet, the reality is that with the spirit of Europe firmly behind it, the euro is solidly here to stay. Anyone who is predicting its death simply does not get it.
The author of this article Edward Ojo is a member of the Editorial Board of Read-Online.Org and a socio-economic researcher. (Contact: Edward.Ojo@read-online.org)
Opinions expressed in this article are those of the author and do not necessarily reflect the editorial views of Read-Online.Org
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