The euro celebrates 10 years

Catherine, a green-grocer in a small Norman town, has all her prices neatly marked in euros and nothing but euros. Ten years after the creation of a single European currency, seven years after the appearance of euro notes and coins, large French shops and most restaurants and cafes still defy Brussels and list their prices in two currencies.

In Catherine’s small shop on the market square of Thury Harcourt, the prices are exclusively chalked up in euros and euro-centimes. Does this mean that she is a fan of the euro, which is ten years old tomorrow?

“No, not all. The euro has been a calamity for ordinary people. Inflation has been higher, whatever the politicians say. The gap between rich and poor has grown. In France, there are no in-between people left any more. Either you rich or you are struggling.”

Marie-Elisabeth, a shop-keeper in the next street, is more positive – sort of. “Most customers think only in euros now. It is just the very old ones who like everything to be converted into francs. And yet there is no real affection for the euro yet, not like we had for the franc. The franc was like our mum. The euro is like our step-mother.”

Ten years into the greatest monetary gamble ever attempted, the euro appears to be riding high. The 11 founding members of euroland will increase tomorrow to 16, with the arrival of Slovakia. The euroland countries will issue 84,000,000 commemorative two euro coins, the first to carry no national symbols.

The single European currency, once so derided by Eurosceptics, is heading inexorably for parity with sterling – a 30 per cent increase in less than two years. The total value of all euro notes in circulation in the world now exceeds those of dollar bills.

A number of euro-resistant countries – Sweden, Denmark, even Iceland, which is not an EU member – are said to be looking enviously at the storm shelter apparently offered by the euro during the global recession.

The euro is riding high but is it riding for a fall?

As the comments above suggest, the euro has yet to capture the hearts of many Europeans. There is an almost universal, popular conviction that the single currency has unleashed a boom in “real” inflation in the last seven years, even if the official figures insist otherwise. Opinion polls suggest that the euro is still supported by a majority of people in all euroland countries – but the majority is wafer-thin in countries like France and Italy. The euro-phoria which marked the “physical” launch of the currency in 2002 has long ago evaporated.

Only in Germany has the currency gained in popularity. That is hardly surprising, say some politicians and economic commentators in France. They say that the European Central Bank, although managed by a Frenchman based in Frankfurt, has become a kind of Greater Bundesbank managing a Greater Deutschmark – fine for the German economy; less good for all the rest.

Why, for instance, did the ECB raise its interest rates as recently as July, when it was evident that an economic downturn was on the way? Why was it so slow to push the rate down? Because, critics lament, the ECB has inherited the genetic fixation of the Bundesbank with inflation above all things.

In a recent essay in Le Monde, the economic commentator, Pierre-Antoine Delhommais, borrowed Gary Lineker’s celebrated description of football. “The euro is a game which is played by 15,” he wrote. “And in the end the Germans always win.”

While the world economy was booming (however artificially) and the euroland economy humming gently, these tensions did not matter much. The late Milton Friedman, economic guru of Thatcherism, said that it would be impossible to judge whether the euro was a success until it had to cope with a recession.

The single currency will face its greatest test in the next few months as the economic conditions and economic policies of the 16 euroland countries diverge sharply in the face of what may be the worst, global recession for seventy years.

At least six euroland nations – Greece, Ireland, Spain, Belgium, Portugal and Italy – are building what may turn out to be unsustainable new mountains of private and public debt. They are, up to a point, sheltered by the euro because they have no national currency to collapse, as Iceland’s did. But they face increasing difficulties, and expense, in finding buyers for government debt. Greece already has to offer interest rates more than 2 per cent more than Germany – compared to 0.2 per cent more before the crisis.

There is no precedent for such large divergences of debt “yields” within a single currency.

Although EU governments, chivvied by Nicolas Sarkozy and Gordon Brown, adopted a common plan for rescuing their banks, they failed – largely through German resistance – to adopt a convincing common scheme to refloat their economies. The €200bn “plan” floated by Brussels represents 1.5 per cent of GDP – three times less than the equivalent project in the United States. Some European countries are feeding demand. Others are stoking up the “offer” side of the economy.

The only country which has sufficient economic margin safely to pump more money into the EU economy is Germany. Berlin, however, takes the economic viewpoint of the ant in La Fontaine’s fable. The grasshoppers (its euroland partners) sang when it was warm; let them dance now that it is cold.

Such an attitude may be sensible in purely national terms. On the part of a manufacturing and exporting country which depends on the economic health of its partners and near-neighbours, it may be short-sighted. For a country which is, inevitably, the central pillar of the single European currency, it may prove to be calamitous.

There is no precedent in economic history for a single currency to be employed by so many developed and disparate economies without a single government or single economic policy. Eurosceptic predictions that the centre of such a multi-national currency would not hold have proved wrong - so far. The next six months will tell us whether they were completely wrong.