Euro was the path of least em­bar­rass­ment

The Pak Banker - - OPINION - Ed­ward Hadas

Swash­buck­ling cava­liers dis­ap­peared from Euro­pean pol­i­tics long ago. Even the age of elo­quence seems past. But great things can be made out of the dull in­gre­di­ents of mod­ern diplo­macy: meet­ings, po­si­tion pa­pers and fuzzy com­pro­mises. As Va­lerie Ca­ton shows in her new book, "France and the Pol­i­tics of Euro­pean Eco­nomic and Mon­e­tary Union", the euro is a prime ex­am­ple.

Ca­ton, a re­tired Bri­tish diplo­mat, chron­i­cles what amounts to a slow ca­pit­u­la­tion by a se­ries of French and Ger­man gov­ern­ments. The French of both left and right trea­sured na­tional po­lit­i­cal con­trol of eco­nomic and mon­e­tary pol­icy. The Ger­mans were equally united in their com­mit­ment to an in­de­pen­dent cen­tral bank which was purely Ger­man.

But by 1996, the two coun­tries had agreed to a Euro­pean mon­e­tary au­thor­ity which would be free of all gov­ern­ment in­flu­ence.

The euro fol­lowed. By 2012, the two coun­tries had bro­ken al­most all their pre­vi­ous prin­ci­ples, and en­cour­aged or at least al­lowed the Euro­pean Cen­tral Bank to bend its rules, to keep Greece from fall­ing out of the euro zone.

What hap­pened? Ca­ton gives a brisk and clear chrono­log­i­cal sum­mary of the decades of po­si­tion pa­pers, elec­tion cam­paigns, sum­mits and high-level com­mit­tees. She goes be­yond her French fo­cus to de­scribe the in­fight­ing be­tween the Ger­man Bun­des­bank and the coun­try's more Euro­pean-minded politi­cians.

She shows that at al­most ev­ery stage from the 1970 Werner re­port to the Au­gust 2011 Franco-Ger­man agree­ment on the cre­ation of a "ver­i­ta­ble gov­ern­ment of the euro zone", the whole pro­ject looked im­plau­si­ble at best. How­ever, the mo­men­tum be­hind the sin­gle Euro­pean cur­rency proved ir­re­sistibly strong.

There were some prag­matic cal- cu­la­tions. The eco­nomic and fi­nan­cial worlds had be­come too in­ter­na­tional for any na­tional gov­ern­ment to go it alone. French Pres­i­dent Fran­cois Mit­ter­rand turned to Europe in the 1980s af­ter his na­tion­al­i­sa­tions and gov­ern­ment push failed to viv­ify the econ­omy. Ger­many ul­ti­mately pre­ferred to bind its big­gest trad­ing part­ners into a sin­gle cur­rency than to deal with dis­rup­tive de­val­u­a­tions.

There was also what might be called Europe's des­tiny. Again and again, the lead­ers of France and Ger­many felt com­pelled to move as far away as pos­si­ble from the chaos of the first half of the cen­tury. They con­sid­ered the po­lit­i­cal goal of Euro­pean unity to be more im­por­tant than any dis­agree­ments about in­ter­est rates or fis­cal pol­icy.

The French were de­ter­mined to show that they were good enough Euro­peans to keep up to Ger­man stan­dards of fis­cal rec­ti­tude. The Ger­mans were suf­fi­ciently com­mu­nity-minded to coun­te­nance French ideas about shar­ing con­trol of gov­ern­ment eco­nomic poli­cies. Coun­tries such as Italy, with a tra­di­tion of high fis­cal deficits, were will­ing to change to stay in­side the Euro­pean main­stream.

The fi­nan­cial and Greek crises have shown that the cu­ri­ous mix of prag­ma­tism and ide­al­ism has not worked per­fectly. Euro­pean lead­ers were so anx­ious to cre­ate a shared cur­rency that they did not worry about the in­abil­ity of the euro's gov­ern­ing struc­tures to deal with the prob­lems of weak mem­bers in hard times. A more cau­tious ap­proach might not have helped.

As Ca­ton points out, be­fore the 2008 fi­nan­cial cri­sis few econ­o­mists paid much at­ten­tion to what turned out to be the great­est chal­lenge to the euro, the toxic in­ter­ac­tion be­tween na­tional gov­ern­ments and their banks.

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