It's the politics stupid !

I usually listen with great interest to the lunchtime interview on BFM business radio. The journalist, Hedwige Chevrillon, asks well prepared and searching questions, chooses her guests carefully and always manages to get something interesting out of them. Monday’s guest was Jean Messiha, a senior official in the French administration, interviewed in his capacity as the co-ordinator of Marine Le Pen’s presidential programme. As BFM focuses mainly on economics, finance and business, most of the questions concerned Marine Le Pen’s oft-stated intention of abandoning the Euro and going back to the Franc.

M. Messiha is a clever and ambitious man. Of Coptic Egyptian origin, he arrived in France at the age of eight, did all his subsequent schooling in France, got a PhD in Economics and graduated from ENA. He speaks calmly and stated clearly all the familiar arguments to show that the Euro has been a failure and that France should make an orderly exit and have nothing more to do with it.  

Calling for a serious “review” of what the Euro has failed to achieve, he went over the usual ground: it has cramped French industrial competitiveness; the Euro area is little more than a DM zone chafing under rules “imposed by Brussels”; it is not adapted to the structure of the French economy; if France were to restore its monetary sovereignty and devalue, economic growth would pick up, unemployment would fall, deficits would be reduced and everyone would be better off. Asked about Greece, his response was that “it should have left the Euro” in 2011 or 2012, presumably meaning that if it hadn’t gone quietly it should have been pushed, the solution that German finance minister, Wolfgang Schaüble, was said to favour at the time. Messiha was convinced that once all the “facts” had been placed before the French people they would decide, in a referendum promised by Le Pen if she is elected President, to abandon the Euro.

I found myself thinking, with mounting irritation, that I had heard all this before…and that it was only half the story. Listening with half an ear, one could have been mistaken for thinking that France was the only country that had the Euro as a currency or at least the only one that had problems with it.

I would have liked to hear Messiha tell the other half of the story: that France shares the Euro with18 other countries; that the 19 members of the Euro area have decided, not unnaturally, to entrust its governance to European institutions like the European Central Bank and the European Commission; that many of the countries in the area, the original members as well as the more recent joiners, have submitted themsleves to painful economic restructuring. Portugal, Ireland, Spain and the three Baltic republics come to mind, not to speak of Greece. How come that France has come off so badly? Only because of the Euro or also because it has not yet made the necessary efforts to put its own economic house in order? As for Greece, Messiha seems to have forgotten that one of the reasons why Greece did not leave the Euro during the crisis of 2011 and 2012 was that the Greeks, in spite of everything, did not want to. If polls are to be believed, around 80% of the French do not want to either.

I cast my mind back to another debate, in Germany, after the fall of the Berlin wall, long before the introduction of the Euro.  As a prelude to unification of the two halves of the country, Chancellor Helmut Kohl decided, against the almost unanimous view of economists, that one Ostmark would be worth one Deutschmark. It was a political decision. The economists were overruled, just as Schaüble was overruled by Chancellor Merkel during the Greek crisis.  Of course, many of the economic difficulties predicted at the time occurred and the eastern part of Germany, however remarkable its recovery, is still, on average, poorer than the western part. But in 50 years time, long after the economic difficulties have been forgotten, Helmut Kohl will be remembered as the Chancellor who did not fluff the historic chance to unite his country in peace.

The Euro, to be sure, will continue to generate heated debate about its economic merits and drawbacks. Many economists like Joseph Stiglitz have been stinging in their criticism that the Euro area is not what they call an "optimum currency area", like the United States, and therefore can never work.

The truth is that the Euro is very much work in progress. Since its launch, institutions and arrangements have been added, usually during or after a crisis, as so often in the EU. The European Stability Mechanism  (2013) and the banking union (2016) are good examples. Others are necessary. The Euro area is still a long way from the transfer union of the United States that took over 100 years to perfect. Fiscal transfers already take place in the EU from the richer to the poorer members. It will take longer for true fiscal federalism, in some form or another, to evolve. Is that a good enough argument for abandoning the whole venture after less than 20 years?

That process will indeed take years rather than months. But if European politicians do not make the political case, debates between opposing schools of economists will become increasingly acrimonious and toxic.  The Euro, let’s face it, is above all a political project, designed to help bring about that “ever closer union among the peoples of Europe”, that is one of the founding principles of the European Union. And that is precisely what Marine le Pen and her like are afraid of.

But the majority in most EU member countries, including I hope in France, seem to consider that it is still a better path to follow than all the others. If that is the case, political leaders should say so and do their bit to make the Euro work better.