WHY THE EURO IS DOOMED
David Marsh on the national
rivalries that bedevil the single currency
WIM DUISENBERG, the gaffe-prone pres- ident of the European Central Bank, is a man who displays fundamental decency and readiness to help others. After I visited him nine years ago at his old offices at the Dutch central bank in Amsterdam, he cheerfully gave me a lift to the city's police headquar- ters in his chauffeured limousine so that I could early out some journalistic research on crime in the Netherlands. Now Duisenberg is in the dock himself, charged with wilfully neglecting the upkeep of the fledgling Euro- pean currency placed under his care. Duisenberg refuses to be cast as the Lying Dutchman: his explosively honest answers to questions about currency intervention, in his notorious conversation with the Times earli- er this month, sent the euro — and his own reputation — plunging to new lows.
Why did the central banker, who always used to be considered a boring proxy for German monetary orthodoxy, speak so stupefyingly out of turn? Duisenberg, evi- dently, has not been suddenly transformed into a fool, a knave or a madman. Yet if the ECB chief had suffered an abrupt per- sonality dysfunction, the problem would be less disquieting, for it would be relatively simple to remedy. In fact, the episode illustrates some wider — and less readily rectifiable — difficulties besetting the sin- gle-currency project.
Launching a unified currency for 11 countries that remain politically disunited and economically disparate is a fundamen- tally flawed idea. If the president of the once-mighty Bundesbank made mistakes (and this did occasionally happen), he would always be buttressed by German public opinion. The ECB president is deprived of this support because there is no European public opinion — there are sim- ply 11 EMU countries. British Eurosceptics may believe that EMU is the precursor for a gigantic leap towards a 'United States of Europe'. In fact, neither France nor Ger- many — let alone smaller countries like the Netherlands — wants anything like the degree of political union needed to make EMU function properly. That is why, in one way or another, it is likely to fail.
Duisenberg is a rational man in a hugely irrational position. His calamity is simply the latest accident afflicting all the prime partic- ipants in the euro saga. None of the main players in Maastricht's decade-long Euro- pean repertory run — Kohl, Delors, Mitter- rand, Andreotti, Thatcher, Major — has emerged with his reputation enhanced. They are like characters in a Greek tragedy, sucked inexorably towards their doom. Small wonder that, with Tony Blair showing increasing euro-caution, a post-election ref- erendum on British membership is now unlikely. Britain's position outside EMU is complex, difficult and uncertain. All this is child's play compared with the prospect of navigating British policy from within EMU.
None of the mishaps that have befallen the single currency since it was launched in January 1999 has been a surprise. They are part of the project's birthright. Seldom in the field of political endeavour has such a variety of warnings delivered by so many well-connected people been so little heed- ed. The Bundesbank issued two formal statements (in September 1990 and Febru- ary 1992) saying that monetary union would be durable only if accompanied by thoroughgoing political union in Europe. Helmut Kohl himself insisted a few days before the Maastricht summit in Decem- ber 1991 that Germany would not give up its monetary sovereignty while political union remained 'a castle in the air'.
A few days after Maastricht, Karl Schiller, the former German economics minister, wrote an article in Der Spiegel call- ing for monetary union to be postponed beyond the 1990s. He predicted that the new European currency would be weak and would counter Germany's real priority of building up the economy in the newly- united eastern part of the country. France made clear all along that its real interest in EMU was to constrain reunited Germany's new strength. The constant tussling between Germany and France over the powers of the new central bank, where it would be sited and even the name of the new currency, indicated that the coming monetary order would be fragmented, weak and prone to political disturbance. Duisenberg himself was shocked when, in November 1997, France broke ranks with the European Union and suggested that Jean-Claude Trichet, the governor of the Bank of France, and not himself, should be president of the soon-to-be–baptised European Central Bank. The action gravely irritated the Bun- desbank, which is antipathetic to Trichet on the grounds that his commitment to inde- pendent central banks is only skin-deep.
Germany's undying support of Duisen- berg's appointment in 1997-98 is one rea- son why the Dutchman seems set to remain in his post beyond the planned introduction of euro notes and coins across the EMU area in January 2002. Trichet has long been seen as Duisenberg's eventual successor. But bringing in Trichet in the near future is impossible, since he has been drawn into a French magistrate's investigation of allegedly false accounting at the Credit Lyonnais bank during the 1990s. Duisen- berg has said that he will step down before his eight-year term expires in 2006. But in view of the animosity he harbours towards President Jacques Chirac over the nomina- tion row three years ago, he has sworn to remain in the post beyond the French presi- dential elections in spring 2002. If Trichet's position becomes more fraught, France could make another high-ranking French- man its candidate for Duisenberg's job. Laurent Fabius, the former prime minister, now finance minister in Lionel Jospin's Cabinet, would be a possible choice.
In view of the personal and political rivalry at the centre of the venture, the EMU drama is likely to lurch forward beset by frantic movement and chaotic noises on and off stage. The currency will probably recover against the dollar in coming months. The present value of about 85 US cents seems absurdly low from an econom- ic point of view. (Don't forget that before the euro's January 1999 launch, many international banks were forecasting it would be worth $1.1041.20.) But this will not be enough to redeem its reputation as a losing currency. The Germans and the rest of Europe will have to come to terms with stewardship of the euro being vested in the hands of a man regarded as a liabil- ity by large parts of the financial markets. It would be a mistake, however, to appor- tion too much of the blame to the luckless Duisenberg. The actor closest to the foot- lights may get the catcalls, but the intrinsic difficulties of playing the part were written into the script a long time ago.
David Marsh, a former Financial Times Germany and Europe correspondent, is vice- chairman of Hawkpoint Partners.
Previous page
