Euro Book Review

David Marsh’s book, The Euro: The Battle for the New Global Currency, was not what I had expected. The book, which I thought would deal more with the current Eurozone crisis, instead was more of a historical piece. Marsh touches on the historical aspects of European currency unions, such as the Gold Standard, the Latin Monetary Union, and various other attempts to have a united European currency, tying in the past attempts of European monetary union with today’s attempt. Marsh’s analysis on the Eurozone focuses much more on the nuance of the Franco-German relationship, and the historical animosity between the two. Also, Marsh tends to focus on the personal and political decisions made which led to the Eurozone, especially by two men who had little knowledge of economics or monetary policy, French President Francois Mitterrand and German Chancellor Helmut Kohl. These two, who led their nations from the early 1980s until the mid-late 1990s, were instrumental in laying the ground for the European Monetary Union. Marsh also focuses on the reasons behind German dominance of the Eurozone, which starts with the rebuilding of the German state after World War II, and Germany’s desire to have a stable, powerful new currency, the Deutsche Mark, in order to avoid the disasters of hyperinflation like in the 1920’s, one of the causes of the Nazi rise to power. Kohl, and most of the German public were immensely proud of the Mark, and saw it as a pillar of the postwar, democratic German state. Kohl, however, was convinced to give up its commitment to the Mark in exchange for French support for German reunification in 1989. German reunification, a central event in Marsh’s book, can be seen as one of the catalysts of monetary union, since it required the Germans to join the European currency. Mitterrand only accepted reunification due to the promise of monetary union, while British PM Margaret Thatcher was vehemently opposed to it, part of an overall anti-European policy. Marsh is not the biggest fan of Thatcher, and refers to her as a right-wing populist, but implies her decisions on rejecting Eurozone membership were prescient. Thatcher’s policy was based in British nationalism, of which her vehement opposition to joining the European Exchange Rate Mechanism (ERM), the forerunner to monetary union, was only a small part. Thatcher eventually relented to joining ERM, but her stubbornness over Europe helped cause her downfall, led by the pro-Europe wing of the Conservative Party. Britain soon left ERM, however, following the inability of the Pound to stay within ERM limits of exchange rates. The resulting devaluation of the Pound sterling also later cost PM John Major and the Conservatives the next election, however the economic fallout was not as bad as it could have been.

In 1992, the Maastricht Treaty was signed, which committed its signatories to adopting the Euro, with the exception of Britain and Denmark. The commitment to adopting the Euro led to a series of actions, mainly through the ERM, to help set parity among the Eurozone nations and avoid economic turmoil. Marsh’s view of the ERM and its subsequent role in the creation of the Euro rather negatively, since many nations who were part of the ERM and the subsequent Eurozone had managed their finances incredibly poorly. Marsh specifically cites the French and Italians as culprits among the main Eurozone members, without mentioning the Greeks at first. However, when it comes to the Greeks, who lied about their finances to gain entry in the Eurozone, it was the first in a set of dominoes to fall. It should not be all that surprising, that the Eurozone nations did not, and could/would not completely align their finances to Eurozone standards. Plus, the incentive of a new, strong currency, backed by the powerful Northern European economies, gave less wealthy Eurozone nations essentially carte blanche to do what they wanted. In particular, peripheral nations in the EU (ex: Spain and Greece) used the Euro as a means to an end so they could raise their standards of living to those of Northern Europe, but at the cost of large scale public debt, which their governments were not concerned about in the early days of the Euro, but that came back to bite them following the 2008 economic recession. Germany, however, managed its finances much better, and following labor reforms in the early 2000s, was not beset with the high unemployment that affected a number of Eurozone nations following the recession. Germany’s effective weathering of the recession, coupled with its export driven economy, allowing it to take an even more central role in the Eurozone, to the point where Angela Merkel is now seen as the EU’s de facto leader. Also, Germany’s rapid rise in the EU, especially following the recession, came at the expense of France, whose economy has had a poor recovery following the recession. France’s position in the Eurozone has become second fiddle to Germany, with Merkel dominating French Presidents Sarkozy and Hollande on European policy. If there is any lesson to be learned from Marsh’s book, it is that Germany’s dominance of the Euro is centered on its national requirement to have a strong currency, and an export-driven economy, allowing it to maintain its leading position in the EU.