Why the euro is in the wars

by Simon Kuper

Financial Times Magazine
June 3, 2011

One February evening in 1998 I was sitting in the offices of this very newspaper, trying to finish my daily report on the currency market. Unfortunately, it had been a quiet day. I was 150 words short. In the end, I stuck in a comment from Goldman Sachs, saying that the Greek drachma was massively overvalued.

The next day the drachma collapsed. “Piece in the FT,” a currency analyst explained to me. The Greek central bank acted fast. To general surprise, it joined the European exchange rate mechanism, a sort of forerunner of the euro. Not long afterwards Greece joined the euro itself. Today I hold up my hands and say, “Sorry.”

But the point is that there was never much economic logic behind the euro – certainly not a euro that includes everyone from Germany to Greece. Economics wasn’t what the currency was about. Rather, the euro is a war baby. It was created because Europe was struggling to get over the second world war. Now that struggle has largely ended, and the war no longer controls our present. Consequently the euro – like much else in today’s Europe – no longer makes sense.

It’s hard to imagine now, but in 1989 Britain’s prime minister Margaret Thatcher and France’s president François Mitterrand naturally assumed that a reunified Germany would start invading Poland again. Two months before the Berlin Wall fell, the duo met in the prime-ministerial country house Chequers to swap fears. David Marsh, in his magisterial book The Euro, quotes Mitterrand’s aide Elisabeth Guigou: “Mrs Thatcher said she had spent her summer reading books about the origins of the wars of the twentieth century. She asked Mitterrand whether he feared being beaten down by reunited Germany.”

Mitterrand replied, in essence, that it would all be OK if the European Union kept Germany in check. He told Thatcher: “Without a common currency, we are all of us already subordinate to the Germans’ will.” He meant that, in practice, most European countries had to track German interest rates.

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