The euro, Europe’s common currency, turns 20 on 1 January 2019. Exactly 20 years ago, on 1 January 1999, 11 EU countries launched a common currency, the euro, and introduced a shared monetary policy under the European Central Bank.
The historic moment was a milestone on a journey driven by the ambition of ensuring stability and prosperity in Europe. Today, still young, the euro is already the currency of 340 million Europeans in 19 Member States. It has brought tangible benefits to European households, businesses and governments alike: stable prices, lower transaction costs, protected savings, more transparent and competitive markets, and increased trade. Some 60 countries around the world link their currencies to the euro in one way or another, and we can and are doing more to let the euro play its full role on the international scene. Other EU Member States are expected to join the euro area once the criteria are met.
To mark this anniversary, the five Presidents of the EU institutions and bodies most directly responsible for the euro, the European Commission, the European Parliament, the European Council, the European Central Bank and the Eurogroup, commented on the 20 years of the single currency and on its future.
Jean-Claude Juncker, President of the European Commission, said: “As one of the only signatories of the Maastricht Treaty still politically active today, I remember the hard-fought and momentous negotiations on the launch of the Economic and Monetary Union. More than anything, I recall a deep conviction that we were opening a new chapter in our joint history. A chapter that would shape Europe’s role in the world and the future of all its people. 20 years on, I am convinced that this was the most important signature I ever made. The euro has become a symbol of unity, sovereignty and stability. It has delivered prosperity and protection to our citizens and we must ensure that it continues to do so. This is why we are working hard to complete our Economic and Monetary Union and boost the euro’s international role further.”
Antonio Tajani, President of the European Parliament, said: “The euro is more popular today than ever: three out of four citizens believe it is good for our economy. In order for Europeans to benefit fully from the jobs, growth and solidarity that the single currency should bring, we must complete our Economic and Monetary union through genuine financial, fiscal and political Union. This will also allow Europe to better shield its citizens from potential future crises.”
Donald Tusk, President of the European Council, said:“The creation of the euro 20 years ago — alongside the liberation of Central and Eastern Europe and the reunification of Germany— was a pivotal moment in European history. Our common currency has since matured into a powerful expression of the European Union as a political and economic force in the world. Despite crises, the euro has shown itself resilient, and the eight members which joined the original 11 have enjoyed its benefits. As the world keeps changing, we will keep upgrading and strengthening our Economic and Monetary Union.”
Mario Draghi, President of the European Central Bank, said: “The euro was a logical and necessary consequence of the single market. It makes it easier to travel, trade and transact within the euro area and beyond. After 20 years, there is now a generation who knows no other domestic currency. During that time, the ECB has delivered on its main task of maintaining price stability. But we also contribute to the well-being of euro area citizens by developing safe, innovative banknotes, promoting secure payment systems, supervising banks to ensure they are resilient and overseeing financial stability in the euro area.”
Mário Centeno, President of the Eurogroup, said: “The single currency has been one of the biggest European success stories: there can be no doubt about its importance and impact over the first two decades of its history. But its future is still being written, and that puts a historic responsibility on us. The euro and the close economic cooperation that it entails has evolved over time, overcoming challenges in its way. It has come a long way since the start, and it has seen important changes in the wake of the crisis to help us leave the hardship behind. But this work is not yet finished, it requires continuous reform efforts in good times as in bad times. There can be no doubts of our political will to strengthen the Economic and Monetary Union. We need to be prepared for what the future may hold – we owe that to our citizens.”
The launch of the euro marked the culmination of a long journey that had begun long before. The global monetary turmoil of the 1970s and 1980s had exposed individual European countries and called for European solutions. Moreover, with the establishment of a single market, it would be easier to work and trade if Europeans would start to use a single currency. After decades of early discussions on how an Economic and Monetary Union could be achieved, in 1988 the Delors Committee was set up. Under the chairmanship of then Commission President Jacques Delors, it examined specific, gradual steps towards such a single currency. The agreement that political leaders subsequently signed in 1992 in Maastricht brought the single currency to life, building on the report of the Delors Committee and the ensuing negotiations. As such, the signing of the Maastricht Treaty became a symbolic moment in the move towards the euro. In 1994, the European Monetary Institute (EMI) started its preparatory work in Frankfurt for the European Central Bank (ECB) to assume its responsibility for monetary policy in the euro area. As a result, on 1 June 1998, the ECB became operational.
On 1 January 1999, the euro was launched, becoming the official currency of 11 Member States, with monetary policy responsibilities given to the European Central Bank and the Eurosystem. After three years of appearing on people’s bank statements alongside national currencies, euro banknotes and coins arrived in 12 countries, which thereby participated in the largest currency changeover in history. The original members were Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, Netherlands, Spain and Portugal. Greece joined in 2001. Since then, a further seven Member States have introduced the euro (Cyprus, Estonia, Latvia, Lithuania, Malta, Slovakia and Slovenia).
The second most used currency in the world
The euro has come a long way from the first discussions in the late 1960s to being the currency of 340 million Europeans and used by a further 175 million worldwide. It is the second most important international currency, with around 60 countries in the world using it or linking their own currency to the euro. It is a safe store of value for international central banks, used for issuing debt worldwide and widely accepted for international payments.
Ten years after the financial crisis shook the world, the architecture of Europe’s Economic and Monetary Union has been significantly reinforced but more work remains to be done. Building on the vision set out in the Five Presidents’ Report of June 2015 and the Reflection Papers on the Deepening of the Economic and Monetary Union and the Future of EU Finances of spring 2017, the European Commission set out a roadmap for deepening the Economic and Monetary Union. In December, EU Leaders also agreed to work towards strengthening the international role of the euro as part of this journey.
A single currency for the benefit of all Europeans
Public support for the euro has been consistently high in the EU, especially in the countries already using the euro. A majority of 74% of respondents across the euro area said that they thought the euro was good for the EU; this is the same as the record high score set last year and confirms that popular support for the euro is at its highest since surveys began in 2002. A majority of 64% of respondents across the euro area also said that they thought the euro was good for their own country. 36% of Europeans identify the euro as one of the main symbols of the European Union, the second highest behind ‘freedom’ as a symbol. It has brought visible and very practical benefits to European households, businesses and governments alike: stable prices, lower transaction costs, more transparent and competitive markets, and increased trade. It makes travelling and living abroad easier, and savings protected.
How America Is Crushing Europe
America creates, imposes, and enforces the sanctions against Russia, which are forcing up energy-prices in Europe, and are thereby driving Europe’s corporations to move to America, where taxes, safety-and-environmental regulations, and the rights of labor, are far lower, and so profits will be far higher for the investors. Furthermore, America can supply its own energy. Therefore, supply-chains are less dicey in the U.S. than in Europe. There is less and less reason now for a firm to be doing anything in Europe except selling to Europeans, who are becoming increasingly desperate to get whatever they can afford to buy, now that Russia, which had been providing the lowest-cost energy and other commodities, is being strangled out of European markets, by the sanctions. Money can move even when its owner can’t. The European public will now be left farther and farther behind as Europe’s wealth flees — mainly to America (whose Government had created this capital-flight of Europe’s wealth).
Europe’s leaders have cooperated with America’s leaders, to cause this European decline (by joining, instead of rejecting, America’s sanctions against Russia), but Germany’s companies can also enjoy significant benefits from relocating or expanding in America. Germany’s business daily newspaper, Handlelsblatt, reported, on September 25th, “More and more German companies are expanding their locations in North America: Washington attracts German companies with cheap energy and low taxes. This applies above all to the southern states. Berlin is alarmed – and wants to take countermeasures.” (Original: “Immer mehr deutsche Unternehmen bauen ihre Standorte in Nordamerika aus: Washington lockt deutsche Firmen mit billiger Energie und niedrigen Steuern. Das gilt vor allem für die Südstaaten. Berlin ist alarmiert – und will gegensteuern.”) It says that “Numerous German companies are planning to set up or expand their U.S. locations. … U.S. states such as Virginia, Georgia, and Oklahoma, show increasing interest” in offering special inducements for these firms to relocate, or to at least expand, their production in the U.S. For example, Pat Wilson, Commissioner of the Georgia Department of Economic Development, tells German companies that, “Our energy costs are low, and the networks are stable. … Companies coming to Georgia [from Germany] are reducing their carbon footprint.” Considering that one of the major reasons why Germany’s Government is squeezing-out Russia’s fuel-supplies (other than to ‘support democracy in Ukraine’, etc.) is that those Russian supplies are fossil fuels, an important benefit by which America can attract European firms (even on the basis of ‘Green’ arguments) is by advertising bigger ‘energy efficiency’ than in Europe — not necessarily in a strictly environmental sense, but definitely in the bottom-line sense, of lowered energy-costs, since America’s regulations are far less strict than in the EU.
Also on the 25th, the Irish Examiner bannered “European industry buckles under weight of soaring energy prices: Volkswagen, Europe’s biggest carmaker, warned last week that it could reallocate production out of Germany and eastern Europe if energy prices don’t come down.”
Also on the 25th, Oil Price dot com headlined “Europe Faces An Exodus Of Energy-Intensive Industries”, and mentioned especially that “the U.S. Steel giant ArcelorMittal said earlier this month that it would slash by half production at a steel mill in Germany and a unit at another plant, also in Germany. The company said it had based the decision on high gas prices. … ArcelorMittal earlier this year announced it had plans to expand a Texas operation.”
On September 26th, the New York Times bannered “Factory Jobs Are Booming Like It’s the 1970s: U.S. manufacturing is experiencing a rebound, with companies adding workers amid high consumer demand for products.” In total, “As of August this year, manufacturers had added back about 1.43 million jobs, a net gain of 67,000 workers above prepandemic levels.” And this is only the start of America’s re-industrialization and economic recovery, because the hemorrhaging of jobs from Europe has only just begun. These German firms are getting in on the ground floor in America, leaving Europe’s workers behind, to swim or sink on their own (the ones that can).
Also on September 26th, Thomas Fazi at unherd dot com headlined “The EU is sleepwalking into anarchy: Its sanctions are crippling the bloc’s working class”, and documented that this hollowing-out of Europe’s economies is being experienced the most by Europe’s lower economic classes, who are the least capable of dealing with it but are being abandoned by the higher-wealth group, the investors, who are sending their money abroad, like banana-republic oligarchs do, and who might easily relocate themselves there too.
On September 19th, the New York Times headlined “‘Crippling’ Energy Bills Force Europe’s Factories to Go Dark: Manufacturers are furloughing workers and shutting down lines because they can’t pay the gas and electric charges.” For example, a major employer in northern France, Arc International glass factory, doesn’t know whether they will survive: “Nicholas Hodler, the chief executive, surveyed the assembly line, shimmering blue with natural gas flames [gas that came from Russia and that now costs ten times as much as just a year ago]. For years, Arc had been powered by cheap energy that helped turn the company into the world’s largest producer of glass tableware. … But the impact of Russia’s abrupt cutoff of gas to Europe [forced by the sanctions] has doused the business with new risks. Energy prices have climbed so fast that Mr. Hodler has had to rewrite business forecasts six times in two months. Recently, he put a third of Arc’s 4,500 employees on partial furlough to save money. Four of the factory’s nine furnaces will be idled; the others will be switched from natural gas to diesel, a cheaper but more polluting fuel.” The “Green” Parties throughout Europe, such as in the persons of Germany’s Foreign Minister Annalena Baerbock, and Germany’s Minister for Economic Affairs and Climate Action Robert Habeck, had led the European movement against importing Russian fuels, and could turn out to have led Europe actually to increase its carbon footprint, if the end result turns out to be to switch to more coal and diesel fuels, as they now are doing.
It could not have happened without the leaderships both in America and in Europe, who are leading the way for Europe’s economies to decline, and for America’s to boom from this — attracting more and more investors, and their investments, into America, from the U.S. regime’s vassal-nations (such as Germany and France), especially in the EU and NATO (these new banana-republics). The beneficiaries of all this are not only America’s weapons-manufacturing firms, such as Lockheed Martin, and extraction firms such as ExxonMobil, that are growing because of the plunge in Europe that’s due to Europe’s cutting itself off from the cheap energy that it had formerly enjoyed. The future is opening up again, for investors in the United States. It’s come-one, come-all, to investors from Europe, and leaving everyone else in Europe simply to sink, if they can’t get out.
The Historic Day of Euro’s Downfall
The date August 22 should be remembered as the day of the euro’s “official” downfall. After a long period of being one of the foremost currencies, the euro has now become cheaper than the U.S. dollar.
When the euro first came into existence, it fell sharply against the dollar. In 1999, the year that the currency came into existence, EUR 1 traded for USD 1.18. On October 26, 2000, the euro fell to a then-record low of USD 0.8228. However, it then appeared to have begun to experience a period of recovery. By early 2001, the euro had risen to USD 0.96. Then, it entered a period of relatively minor decline, with the lowest being USD 0.834 on July 6, 2001, after which the euro gained a firm footing.
The currency that had shown strength against the dollar at the start of this century. On July 15, 2002, the euro began to be close to 1:1 against the dollar. By the end of 2002, it reached USD 1.04 and then continued to soar. On May 23, 2003, for the first time, the euro surpassed the high of USD 1.18, the day when it was launched. This was a key turning point as it continued to rise since then.
The euro broke through USD 1.35 on December 24, 2004. On December 30, 2004, it hit USD 1.3668, a record high during that period. On August 13, 2007, it reached USD 1.37. On November 23, 2007, it was USD 1.49. Then, on April 22 and July 15, 2008, it reached its all-time high of USD 1.60 twice. Even after the 2008 financial crisis, when the euro entered a period of shocks, it still showed strong vitality. On February 8, 2014, EUR 1 at that time could trade for USD 1.3631.
Undeniably, the euro in the past was a rather strong currency in the world market, and it affected the economy and wealth of roughly 500 million people. However, during that time, the euro mainly benefited from the fact that interest rates in Europe were more attractive than that in the United States. This has all but changed now, as the Federal Reserve is raising interest rates continuously. The current interest rate level has far exceeded that of the pre-COVID-19 one. Fiscal deficits too, play a role in the euro’s decline. The U.S. fiscal deficit has long been a major problem. There have been numerous speculations that the scale of the U.S. debt would kill off its economy, yet this does not happen to this day. Hence, the debt of the U.S. government is not regarded as an absolute negative factor as it did in the past.
Europe is similar to the U.S. in many aspects. Whether it is the energy crisis or inflation, the problems felt by the U.S. are present in Europe too. However, Europe is currently experiencing the most tragic war in history after World War II, i.e., the war in Ukraine. On the basis of geopolitics, this war has fundamentally shaken the foundation of the euro. Although the euro will continue to fluctuate up and down against the dollar, the trend will undoubtedly be downward. Geopolitics has made the euro completely lost its advantages compared to the dollar. This is because the entire Europe itself is in a precarious state, close to losing its dominance over the European continent. Now, Europe can only assume a mere supporting role on the global geopolitical stage, no longer a protagonist.
The result of this is frightful. Euro is the most important symbol of the European Union, an aspiration of the EU for its future. It is not exaggerating to say that any major depreciation of the euro would signify the same for Europe as a whole. All euro assets will become worthless when that happens. As things stand, European lawmakers, intentionally or not, have ignored a crucial factor in deciding the fate of the euro, namely geopolitics. Its fundamentals have now been shaken, and it is no longer a reliable currency, but a risky one.
If the war represents the present, what will the future of the euro be?
Currency has a lot to do with credibility. The countries that are the main supporting pillars of the euro, such as France and Germany, have their real competency and moral level in regard to European affairs, being exposed in the recent war. This has severely hit the credibility of the euro. In the worst-case scenario, the two old European countries, France and Germany, will almost certainly request the U.S. for energy support in the future, and possibly even some kind of financial aid in extreme cases. Therefore, in the face of the weak prospect of the euro, it is completely understandable that these two European countries, which are the main countries of the euro, seem to be powerless and indifferent.
All in all, the realist attitude of France and Germany towards the war in Ukraine will only exacerbate the depreciation of the euro, and there is no other possibility. It is unfortunate that the politicians of these two countries have not only sold themselves to a certain extent, but they have also actually sold the future of Europe.
Risk of Global Recession in 2023 Rises Amid Simultaneous Rate Hikes
As central banks across the world simultaneously hike interest rates in response to inflation, the world may be edging toward a global recession in 2023 and a string of financial crises in emerging market and developing economies that would do them lasting harm, according to a comprehensive new study by the World Bank.
Central banks around the world have been raising interest rates this year with a degree of synchronicity not seen over the past five decades—a trend that is likely to continue well into next year, according to the report. Yet the currently expected trajectory of interest-rate increases and other policy actions may not be sufficient to bring global inflation back down to levels seen before the pandemic. Investors expect central banks to raise global monetary-policy rates to almost 4 percent through 2023—an increase of more than 2 percentage points over their 2021 average.
Unless supply disruptions and labor-market pressures subside, those interest-rate increases could leave the global core inflation rate (excluding energy) at about 5 percent in 2023—nearly double the five-year average before the pandemic, the study finds. To cut global inflation to a rate consistent with their targets, central banks may need to raise interest rates by an additional 2 percentage points, according to the report’s model. If this were accompanied by financial-market stress, global GDP growth would slow to 0.5 percent in 2023—a 0.4 percent contraction in per–capita terms that would meet the technical definition of a global recession.
“Global growth is slowing sharply, with further slowing likely as more countries fall into recession. My deep concern is that these trends will persist, with long-lasting consequences that are devastating for people in emerging market and developing economies,” said World Bank Group President David Malpass. “To achieve low inflation rates, currency stability and faster growth, policymakers could shift their focus from reducing consumption to boosting production. Policies should seek to generate additional investment and improve productivity and capital allocation, which are critical for growth and poverty reduction.”
The study highlights the unusually fraught circumstances under which central banks are fighting inflation today. Several historical indicators of global recessions are already flashing warnings. The global economy is now in its steepest slowdown following a post-recession recovery since 1970. Global consumer confidence has already suffered a much sharper decline than in the run-up to previous global recessions. The world’s three largest economies—the United States, China, and the euro area—have been slowing sharply. Under the circumstances, even a moderate hit to the global economy over the next year could tip it into recession.
The study relies on insights from previous global recessions to analyze the recent evolution of economic activity and presents scenarios for 2022–24. A slowdown—such that the one now underway—typically calls for countercyclical policy to support activity. However, the threat of inflation and limited fiscal space are spurring policymakers in many countries to withdraw policy support even as the global economy slows sharply.
The experience of the 1970s, the policy responses to the 1975 global recession, the subsequent period of stagflation, and the global recession of 1982 illustrate the risk of allowing inflation to remain elevated for long while growth is weak. The 1982 global recession coincided with the second-lowest growth rate in developing economies over the past five decades, second only to 2020. It triggered more than 40 debt crises] and was followed by a decade of lost growth in many developing economies.
“Recent tightening of monetary and fiscal policies will likely prove helpful in reducing inflation,” said Ayhan Kose, the World Bank’s Acting Vice President for Equitable Growth, Finance, and Institutions. “But because they are highly synchronous across countries, they could be mutually compounding in tightening financial conditions and steepening the global growth slowdown. Policymakers in emerging market and developing economies need to stand ready to manage the potential spillovers from globally synchronous tightening of policies.”
Central banksshould persist in their efforts to control inflation—and it can be done without touching off a global recession, the study finds. But it will require concerted action by a variety of policymakers:
Central banks must communicate policy decisions clearly while safeguarding their independence. This could help anchor inflation expectations and reduce the degree of tightening needed. In advanced economies, central banks should keep in mind the cross-border spillover effects of monetary tightening. In emerging market and developing economies, they should strengthen macroprudential regulations and build foreign-exchange reserves.
Fiscal authorities will need to carefully calibrate the withdrawal of fiscal support measures while ensuring consistency with monetary-policy objectives. The fraction of countries tightening fiscal policies next year is expected to reach its highest level since the early 1990s. This could amplify the effects of monetary policy on growth. Policymakers should also put in place credible medium-term fiscal plans and provide targeted relief to vulnerable households.
Other economic policymakers will need to join in the fight against inflation—particularly by taking strong steps to boost global supply. These include:
o Easing labor-market constraints. Policy measures need to help increase labor-force participation and reduce price pressures. Labor-market policies can facilitate the reallocation of displaced workers.
o Boosting the global supply of commodities. Global coordination can go a long way in increasing food and energy supply. For energy commodities, policymakers should accelerate the transition to low–carbon energy sources and introduce measures to reduce energy consumption.
o Strengthening global trade networks. Policymakers should cooperate to alleviate global supply bottlenecks. They should support a rules-based international economic order, one that guards against the threat of protectionism and fragmentation that could further disrupt trade networks.
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