The Pandemic Depression
The Global Economy Will Never Be the Same
The euro, which arrived on the streets of Europe on January 1, 2002, recently celebrated its 15th anniversary. The currency’s longevity is probably a surprise to the many observers who have predicted its demise. Yet most citizens of the eurozone—in both the creditor countries of the north and the debtor countries of the south—favor maintaining the euro over returning to their former national currencies.
Given the euro's recent difficulties, what explains the overwhelming public support for it? The standard answer is that people do not want to abandon the euro because they fear the costs and uncertainties of reverting to the currencies used before its introduction. This explanation holds up, but it also overlooks the positive reasons for the euro’s popularity: the single currency has brought its users material benefits and helped to create a common European identity. Europeans do not back the euro simply because they fear the alternatives, but because the status quo offers them real rewards.
Observers outside the eurozone have long had a dark view of the euro’s prospects. Five years ago, in January 2012, the American economist Martin Feldstein—who argued in 1997 that the single currency would bring conflict to Europe—wrote in Foreign Affairs that “the euro should now be recognized as an experiment that failed.” A few months later, Paul Krugman wrote that the euro could fall apart “in a matter of months.” The list of prominent scholars who have either predicted or called for the breakup of the eurozone has lengthened since then. In 2016, Mervyn King, the former governor of the Bank of England, argued that “leaving the euro area may be the only way to plot a route back to economic growth,” and Joseph Stiglitz claimed that “Europe may have to abandon the euro to save … the European project.” Such gloomy views are not only held by leading economists: they are shared by many scholars of EU politics, such as Andrew Moravcsik, who similarly believe that the euro has divided the continent and brought economic stagnation and high unemployment to the southern eurozone.
At first glance, these analyses—together with the rise of Euroskepticism across the continent—seem to suggest that the euro is a broadly unpopular project. In fact, throughout the eurozone, public support for the single currency has remained high over the past ten years, despite Europe’s economic crises. In 2007, some 70 percent of eurozone citizens had a favorable view of the currency, according to the Eurobarometer survey. That number fell to a low of 62 percent in 2013 after the first scare over Greece’s potential exit from the eurozone, or Grexit—but by November 2016, the most recent date for which data are available, it had returned to 70 percent, the historic high. In Greece, which experienced the worst of Europe’s economic tumult, support for the euro climbed from 47 percent in 2005 to 70 percent in 2015, right after the second Grexit scare. In contrast, in EU states outside the Eurozone, support for the euro declined over the same period, from 56 percent to 37 percent—a clear sign that people within and outside the currency union perceive the euro differently.
Throughout the eurozone, public support for the single currency has remained high over the past ten years.
To be sure, some of the eurozone’s support for the single currency comes from fear of the consequences of abandoning it. One of the first scholars to delve into that subject was the American economist Barry Eichengreen, who outlined the problems that countries exiting the eurozone would face in a 2007 working paper for the National Bureau of Economic Research. In Eichengreen’s telling, the costs of exit were frightening. Debtor states such as Italy would have their credit ratings downgraded if they left the currency union, raising the interest they would have to pay on new debt to prohibitive levels and making default nearly unavoidable. To make matters worse, in many cases, the devaluation brought about by reverting to the old currency would fail to meaningfully stimulate domestic demand or boost exports, as creeping inflation triggered by higher import costs and wages would probably offset any gains in competitiveness. These economic problems would be compounded by political ones, as other EU governments would lash out at the state attempting to leave the eurozone, perhaps even forcing it out of the EU entirely. Quitting the euro would also require expensive legal and technical maneuvers—from introducing a completely new currency and redenominating contracts in it to imposing controls to limit capital flight. The result could be a massive financial crisis in the country abandoning the euro. No wonder so many people in the Eurozone don’t want to leave it.
THE EURO’S SOCIAL GLUE
Yet the eurozone’s citizens also want to stay in the currency union because it offers them benefits. Despite the recession, many Europeans in the southern eurozone believe that the EU and the euro offer a measure of democratic stability and security that their national institutions cannot. In this region, most citizens appear to attribute their countries’ economic problems to domestic sources, such as incompetent elites, weak education systems, and a lack of meritocracy and official transparency, rather than to the common currency itself. Although popular regard for EU institutions fell in the aftermath of the eurozone crisis, trust in national institutions in the southern eurozone has fallen even lower. What is more, in states such as Greece, Portugal, and Spain, which transitioned to democracy relatively recently and suffer more from inequality and corruption than their northern European peers do, the euro’s requirements serve as a straitjacket on predatory domestic elites.
Perhaps no feature of the euro appeals to people in the southern eurozone as much as its stability does. Before the euro’s introduction, many citizens of the Mediterranean countries stashed much of their wealth in stable foreign denominations, such as the U.S. dollar and the deutsche mark, if possible overseas, because they feared that fluctuations in the value of their own countries' currencies would undercut their savings. Some did so again at the height of the euro crisis in 2011 and 2012, when the risk of the euro’s redenomination was at its peak as Spain and Italy came under stress. Yet the euro has remained mostly stable despite the crisis, generally lifting the pressure on Europeans to hold foreign currencies. The euro’s stability has helped guarantee the savings of retirees, as older currencies could not. It has obviated businesses owners' concerns about devaluations. And it has enabled members of the middle class to have a strong currency in their pockets when travelling abroad, just like their American and British peers. These are all reasons to support membership in the monetary union.
In the northern eurozone, too, citizens prize the stability that the single currency offers. Exporters there no longer need to fear that their Italian and French competitors might benefit from the devaluation of the lira or the franc. Middle-class tourists from countries such as Germany do not have to fret about currency conversion when travelling to Italy or Greece.
So citizens in the northern and southern eurozone value the currency’s stability for different reasons. But in both areas, they regard the euro as the most tangible symbol of European integration. Indeed, currencies are not simply economic phenomena; they are also cultural ones, and they can help build common identities. By acting as the medium for millions of daily exchanges, the euro has gradually become a shared code. As the political sociologist Giovanni Moro has put it, the euro is “the only existent common language” in a union characterized by linguistic cacophony. Eurozone citizens’ experience of economic crisis in the years since 2009 has strengthened this bond, uniting them against what many felt were attacks by foreign speculators. People who use the euro are thus citizens of the EU in a way that differs from that of their peers outside the currency bloc. This might help explain why the eurozone's outsiders often struggle to understand its insiders.
By acting as the medium for millions of daily exchanges, the euro has gradually become a shared code.
The euro has been a kind of social glue even though many Europeans disagree about the EU's management of the common currency. Indeed, German political scientist Thomas Risse has found that parliamentary debates and media organizations covered similar agendas across Eurozone countries during the euro crisis—a sign that people throughout the currency bloc experienced economic traumas together. Confrontation is inherent to any political community, and even disagreements over euro policy can help construct bonds, since they help to Europeanize public debate. The single currency has created tensions between Europe’s south and north and its political left and right, but this is not necessarily a bad thing.
Ultimately, the resilience of the euro's value despite its exposure to an existential crisis might have strengthened popular trust in the currency—not just in the southern eurozone, which is used to currency fluctuations, but also in the north, where people have long feared that the euro would grow weak. In an uncertain world, stable money can be a powerful symbol of social trust and security. Europeans are not in love with the euro, but despite the proposals of populist challengers such as Marine Le Pen and Beppe Grillo, they do not want to get rid of it, either—and there are plenty of positive reasons why that is so.