Euro dodges crisis with Macron win, but needs fixes
The euro has served macro interests, not the man in the street. It’s been good for banks and for political careers but it hasn’t brought us any great benefits Vitor Rodrigues, Owner of the Leituria bookstore
lisbon — Vitor Rodrigues remembers when they told him in the 1990s that the euro would bring affluence. The owner and only full-time employee of the Leituria bookstore on a leafy street in Lisbon’s Estefania district says he believed it.
“Now I feel very disenchanted,” the 47-year-old says at his cash register. “The euro has served macro interests, not the man in the street. It’s been good for banks and for political careers but it hasn’t brought us any great benefits.”
The euro, the target of populist politicians who claim it has inflicted undue economic pain on Europeans, has a new lease on life after Emmanuel Macron, a firmly proeuro moderate, won the French presidential election this week. His rival, the right-wing Marine Le Pen, had wanted to pull France out of the bloc, with likely painful consequences for the currency.
But even Macron acknowledges the need to strengthen and reform the euro. He will find it, however, an uphill battle.
There are political logjams making the currency more resistant to market crises and to end its most painful shortcoming — a reliance on crushing budget austerity to fix countries whose finances and economies run into trouble.
Countries that ran into heavy debt — Greece, Ireland, Portugal, Cyprus and Spain — got bailout loans from the other members in return for massive cuts to public spending. That caused job losses, pushed families into poverty and hurt company earnings.
It pitted creditor countries like Germany and the Netherlands against the often resentful debtors. And even countries like France or Italy, large economies that are struggling to grow but did not need bailouts, have had to focus on public spending cuts to meet euro rules.
The eurozone is growing and many of these economies are now doing better. The EU’s regular Eurobarometer poll shows 56 per cent agree the euro is good for their country, with 33 per cent saying it’s bad. Even in Greece and Portugal, majorities support the euro. But the brutal bailout experience has fueled the kind of disenchantment Rodrigues conveys.
He says he and people he knows have undergone years of steady erosion of their buying power. “Someone in an average job, say middle management, earns less now than they did before the euro,” he said.
Portugal hoped to graduate from being a low-wage economy with membership of the euro in 1999. But the low interest rates that came with its linkage to stronger economies like Germany invited overspending. Portugal dug itself deep into debt and needed a €78 billion bailout in 2011.
Portugal’s finances are healing, but only after years of cutbacks, including wage freezes and pension cuts. The average monthly salary in the private sector, also before tax, is around €1,100 ($1,200).
Worst hit has been Greece, which saw its economy shrink by a quarter. Shuttered storefronts litter downtown Athens. Whole families can be seen lining up for free meals at a growing number of soup kitchens.
What went wrong? When trouble arrived, member countries found that joining the euro had taken away important safety valves. They could not let their currency fall in value to make themselves more competitive in international trade. And there was no large central treasury to even out recessions.
Roberto Gualtieri, who chairs the committee on economic and monetary affairs in the European Parliament, thinks the need for new steps is widely enough recognised that action could follow the German election in September.
“I hope that after this electoral cycle, we will have the political conditions for providing more investments, more reforms, and better and more completed economic and monetary union,” Gaultieri said. — AP