The twilight of a European dream
GIS statement by Prince Michael of Liechtenstein
United States President Donald Trump is threatening to impose economic sanctions against countries that he claims create unfair trade advantage to themselves by artificially depressing their currencies. His main targets are Germany, Japan and China.
An interesting argument is used in the case of Germany. The U.S. points out that as part of the eurozone, Germany uses a currency that is weak because European economies burdened with immense structural problems are also parties to the system. President Trump’s negative generalization puts Germany in a difficult position and may end up driving another nail into the euro’s coffin.
The common currency was a fantastic project for enhancing trade within the EU’s internal market. It was a real help for business. So why is the euro being questioned now? The often-heard argument is that for a common currency to work properly, common economic and fiscal policies needed to be in place. Before the euro, Europe’s weaker economies could remain competitive by devaluing their currencies. Now, this avenue is closed to eurozone members. However, this view is superficial and takes a short-term perspective.
The true problem with the euro is that from the onset it has been used as a political tool. Unprepared economies, such as Greece, were invited to join the currency club, ignoring the admission criteria. The internal market’s excessive regulations, meanwhile, did not allow these weaker economies to increase their productivity.
Worst of all, the ceiling on the governments’ budget deficits, set at a maximum of 3 percent of GDP in the Maastricht Treaty, was not respected. Public overspending and waste in most member states have led to the accumulation of vast loads of debt. Germany and France set a bad example by violating the deficit ceiling first.
The European Central Bank (ECB) has made this drama still worse when, disregarding its obligation to be independent of politics, it added fiscal measures, such as buying public debt, to its monetary policy toolbox. The real duty of the ECB was to protect the value of the currency.
The effect of the ECB’s policy of limitless purchases of sovereign bonds has been to delay desperately needed reforms in eurozone countries.
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