PG02 LETTER FROM
                                                                                                                 THE EDITORS

                                                                                                           PG03 HISTORY OF THE
                                                                                                                 EUROPEAN MONETARY

                                                                                                           PG05 WILL THE MONETARY
                                                                                                                 UNION COLLAPSE?

      THE FUTURE OF THE                                                                                    PG08 POLITICAL UNION:
                                                                                                                 THE END GAME OF
                                                                                                                 THE EURO

                                                                                                           PG10 THE BIRTH AND
                                                                                                                 DEATH OF THE EURO

                                                                                                           PG14 QUOTATIONS ON
                                                                                                                 MONETARY UNION

                                                                                                           PG15 SWEDEN’S
                                                                                                                 ON THE EURO

                                                                                                           PG18 ROMANIA, FROM
                                                                                                                 ADHESION TO EURO

                                                                                                           PG19 THE EVER DISTANT

                                                                                                           PG21 A SHORT HISTORY OF
                                                                                                                 SINGLE CURRENCIES

                                                                                                           PG22 THE EURO TODAY

                                                                                                           PG26 A DOUBLE RIP-OFF

                                                                                                           PG28 TRANSPARENT

      Independence/Democracy Group
      European Parliament, Rue Wiertz, 60 - ATR 7K 082 - 1047 Brussels, Belgium                            PG30 EUROPE IN NUMBERS

Letter from the editors
"The single market was the theme of the Eighties. The single curren-
cy was the theme of the Nineties. We must now face the difficult task
of moving towards a single economy, a single political unity."

These are Romano Prodi's words in a speech to the European
Parliament, as Commission President, in 14 April 1999. That was the
year the euro was launched as the common currency of twelve mem-                      Published by the IND/DEM Group
ber states. Since then, it has become clear that the promises made                    in the European Parliament
about the economic advantages of the euro were somewhat overesti-           
mated. Although the euro proved itself to be a stable currency, this                  Ind/Dem Group, Rue Wiertz,
stability had a high price: slow economic growth as a consequence of                  1047 Brussels.
the provisions of the TEC and of the Stability and Growth Pact.
                                                                                      CHIEF EDITORS:
Besides, it is more than doubtful that the system is able to handle the               Klaus Heeger
so-called asymmetric shocks when external impacts influence the                       Karoly Lorant
member states differently.
                                                                                      EDITORIAL BOARD:
                                                                                      Peter Henseler
In this edition, EUWatch addresses the problem of the euro, giving                    Jan Johansson
the floor to a distinguished expert, Paul De Grauwe, professor at the                 Jolana Mungengova
Faculty of Economics and Applied Economics at the University of
Leuven, and an adviser to Commission President José Manuel                            DESIGN & LAYOUT EDITOR:
                                                                                      Henry Abela
Barroso. Meanwhile, different authors give an overview of the histo-
ry of the monetary union and the euro, display the experiences of the                 FORM EDITOR:
old and the perceptions of the new member states, and finally give                    Anders Dahl
some theoretical background of monetary unions.
                                                                                      ENGLISH LANGUAGE EDITORS:
                                                                                      Kevin Bonici
This issue also includes some thoughts on subsidiarity and on free-                   Anthony Coughlan
dom and security. It closes by highlighting some interesting results of               David Lott
the Eurobarometer poll, where European citizens were asked about                      Steve Reed
their opinion concerning the euro.
                                                                                      FRENCH LANGUAGE EDITOR:
                                                                                      Christophe Beaudouin
Hoping that you will enjoy reading our contributions and looking for-
ward to receiving comments or reactions you may care to send,

Your sincerely,

Klaus Heeger Karoly Lorant
Chief Editors

NOTE: The Board of editors of EUWatch is independent in its choice of articles.
The responsability for the content of articles lies exclusively with their authors.

1962                                                   President Nixon unilaterally announced that the US
The European Commission proposed a single currency     would discontinue the convertibility of the US dollar
for Europe                                             to gold, thus ending the fixed exchange rate regime
                                                       and bringing about a wave of instability on the foreign
1969                                                   exchanges. The EMU project was temporarily aban-
The Hague Summit                                       doned.
The six member States of the European Economic
Community (EEC) decided to establish an economic       1972
and monetary union (EMU) as an explicit goal of the    Snake in the Tunnel
Community and set up a high-level group to examine     After the collapse of the Bretton Woods system, the
how to achieve this, chaired by Luxembourg’s Prime     six EEC-Member States set up a ‘snake in the tunnel’
Minister Pierre Werner.                                mechanism to narrow the fluctuation margins
                                                       between the Community currencies (the snake) and
1970                                                   the US dollar (the tunnel). However, the system came
Werner Report                                          under pressure from the oil crisis of the early 1970’s,
The Werner Report proposed a three-stage plan to       when Member States’ currencies fluctuated sharply,
create an economic and monetary union within a         some leaving the system altogether. By 1977 the
decade. The three stages to achieve EMU were set out   snake was reduced to a zone based around the
as follows:                                            German mark, with only five out of nine Member
                                                       States remaining.
 – Reduction of the fluctuation margins between
   Member States’ currencies, broad guidelines for     Paris Summit
   economic policy at Community level, co-ordina-      Heads of State and heads of Governments approved
   tion of budgetary policy, preparation of Treaty     the objective of the progressive realization of eco-
   changes to facilitate later stages of EMU;          nomic and monetary union.
 – Integration of financial markets and banking sys-
   tems to create free movement of capital, progres-
   sive elimination of exchange rate fluctuations,     1978
   closer co-ordination of short-term economic poli-   Establishing the European Monetary System
   cies and budgetary and fiscal measures;             Following a Franco-German initiative, the Community
 – Irrevocable fixing of exchange rates between par-   decided to re-launch monetary integration at the
   ticipating national currencies, convergence of      Brussels European Council by creating a European
   economic policies, establishment of a Community     Monetary System (EMS), with the objectives of stabil-
   system of central banks.                            ising exchange rates, reducing inflation, and prepar-
                                                       ing for monetary integration. The EMS entered into
1971                                                   force on 13 March 1979.
Collapse of the Bretton Woods Monetary System
The Bretton Woods system effectively collapsed when                                        Continues on page 4

Continues from page 3                                             replacement by a single European currency,
                                                                  responsibility for monetary policy would be
                                                                  transferred to the ESCB.

The system consisted of three elements:                   Most of the ideas set out in the Delors report later
                                                          formed the basis for the EMU provisions agreed in the
       – Currency basket (European Currency Unit or       Maastricht Treaty.
       – Monetary stabilisation mechanism (Exchange       1990
         Rate Mechanism or ERM);                          Full liberalisation of capital movements (from 1 July
       – Mechanism for financing monetary interven-       1990).
         tions (European Monetary Co-operation Fund
         or FECOM).                                       1992
                                                          Treaty of Maastricht
The ERM gave each currency a central exchange rate        With the Treaty of Maastricht, the fifteen members of
against the ECU, which also gave them central cross       the European Union agreed to set up a single curren-
rates against each of the other participating curren-     cy as part of a drive towards Economic and Monetary
cies. Participants were then required to maintain         Union. The Treaty of Maastricht defined convergence-
their exchange rates within a 2.25% fluctuation band      criteria among the economies of participating coun-
above or below each bilateral central rate.               tries. This was the preliminary stage of the single
The Single European Act                                   1994
The Single European Act placed the free movement of       Establishing the European Monetary Institute (EMI)
capital on the same footing as that of goods and serv-    The purpose of the European Monetary Institute was
ices. Monetary co-operation was introduced as a new       to promote cooperation between the national banks
area of Community competence. By introducing qual-        of the member states in the European Union. It was
ified majority voting for a number of issues, the Act     eventually replaced by the European Central Bank and
extended the Commission’s power.                          the European System of Central Banks. The European
                                                          System of Central Banks consists of the European
1989                                                      Central Bank and the local, central banks of the
Delors Report endorsed by the Madrid summit               European Union’s twenty-five member states.
The Delors Report set out a plan to introduce EMU in
three stages, which required an institutional frame-      1995
work to allow policy to be decided, and executed, at      The name “euro” was decided upon, on 16 of
the Community level, in economic areas of direct rel-     December
evance for the functioning of EMU. This institutional
framework entailed also the creation of a monetary        1997
institution, namely a European System of Central          The European Council decided to adopt the Stability
Banks (ESCB) which would become responsible for for-      and Growth Pact (June). This pact was to ensure
mulating and implementing monetary policy, as well        budgetary discipline after the creation of the euro,
as managing external exchange-rate policy. Unlike         and to set up a new exchange-rate to provide stabili-
the Werner Plan, it did not propose a new body to co-     ty between the euro and the national currencies of
ordinate economic policy, but rather that these func-     countries which had not then entered the Euro-zone.
tions could be carried out within the existing institu-
tional framework. The three stages for the develop-       1998
ment of EMU were:                                         The European Council agreed the list of participating
                                                          countries: Austria, Belgium, Germany, Finland,
       Stage One: Increased co-operation between          France, Ireland, Italy, Luxembourg, Netherlands,
         central banks in relation to monetary policy,    Portugal and Spain (arrival of Greece in 2001).
         removal of obstacles to financial integra-
         tion, monitoring of national economic poli-      The European Central Bank (ECB) was established as
         cies, co-ordination of budgetary policy;         the institution responsible for European monetary
       Stage Two: Preparatory stage for the final         policy.
         phase of EMU, establishment of the ESCB and
         progressive transfer of monetary policy to       1999
         European institutions, narrowing of margins      The single currency was launched (1st January)
         of fluctuation within an exchange rate
         mechanism;                                       2002
       Stage Three: Fixing of exchange rates              Euro coins and banknotes entered circulation (from
         between national currencies and their            1st January)

           “THE EURO AND THE OCA”:
           UNION COLLAPSE?
           In 1961 Robert A. Mundell published a small   · sufficient labour mobility in the future
           article in the American Economic Review       MU (i.e. within and between the MU
           on “A Theory of Optimum Currency Areas”.      member candidates);
           In the 1990s several economists took up       · freedom of capital mobility within the
           Mundell’s ideas, for example by asking        MU;
           whether Europe could be an Optimum            · stability of the real exchange rate
           Currency Area (B. Eichengreen 1990) and       behaviour (variability) between the can-
           by analyzing the real exchange rates with-    didate countries which is measured by
           in and between Currency Areas (J. v.          the price level and cost ratios (in real
           Hagen/ M.J.M. Neumann 1994). One of the       terms)      between     the     candidate
           most important books on the economics of      economies.
           monetary integration dealing with the the-
           ory of Optimum Currency Areas (OCA) and       Although freedom of capital was intro-
           the costs and benefits of monetary integra-   duced on 1 July 1990 and at the same
           tion was published in 1992 by Paul De         time linked to the first stage of the
           Grauwe, Professor of Economics at the         European MU (thus pulling down already
           University of Leuven, Belgium. It is now      one of the most important bastions of
           available in the 5th edition (2003) titled    national economic policy), the other cri-
           “Economics of Monetary Union”.                teria in reality are not fulfilled (although
                                                         freedom of movement for workers is
           The OCA theory postulates that the candi-     legally guaranteed by the Treaty). This
           date countries for a Monetary Union (MU)      causes economic and social disparities
           should form an area which is sufficiently     between the MU member countries, put-
           similar, if not homogeneous, from an eco-     ting the MU at risk - even of collapsing, as
           nomic and social point of view (concerning    a whole, or of losing those members, who
           common economic and social standards          are under pressure because of significant
           and performances) to provide a stable         disparities. In the latter case perhaps
           basis for the common currency. As MU          that “hard core” of countries which had
           means centralization of monetary policy       already linked their currencies together
           and giving up national exchange rate          before the first stage of the MU started,
           autonomy, asymmetric economic shocks          namely D, NL and A, would remain.
           cannot be absorbed by national exchange       Moreover this area, which is nearly iden-
           rate policy any longer (in particular by      tical with the Holy Roman Empire of the
           devaluation of the national currency to       German Nation, would according to the
           regain competitiveness of national goods      empirical findings of the OCA economists
           and services on the world market). The        mostly fulfill the OCA criteria mentioned
           OCA theory therefore developed several        above.
           criteria or conditions which justify giving
           up exchange rate autonomy by entering         To minimize the risk mentioned above
           the MU. These are in particular:              several compensation mechanisms are
                                                         necessary, namely:
           · sufficient flexibility of wages in the
           future MU;                                                            Continues on page 6

Continues from page 5                 the deficits of political legitimacy   the national level, even by allow-
                                      of the ECB would become evident.       ing increasing national budget
· more funds for the Union budget     All this has been well known in the    deficits. This, however, would
to establish a (partly automatic,     world of academic economics            contradict the Stability Pact crite-
partly discretionary) fiscal equal-   since 1961, when Mundell pub-          ria. If, in the really worst-case
ization system (as in the European    lished his groundbreaking article      scenario, neither sufficient funds
federal states) in a more effective   on the OCA theory, for which he        for establishing a fiscal equaliza-
way than it is provided by the        was awarded the Nobel Prize in         tion mechanism on the supra-
structural funds up to now,           1999.                                  national level, nor sufficient fund-
· may be by augmenting national                                              ing of the national budgets, can be
contributions to the Union budget,    Besides all this – and particularly    provided, we shall perhaps experi-
· if this would turn out to be not    in the case of rising unemploy-        ence a lot of Mezzo-Giorno effects
possible or not sufficient, may be    ment – a lot of contradictions and     within the MU!
by introducing Union taxes, in par-   inconsistencies would become evi-
ticular income taxes (i.e. partly     dent between economic policy           In any case, if the Union does not
centralization of taxation policy);   instruments, namely, between           succeed in minimizing the risk,
· more Union competences (cen-        supply-side oriented OCA condi-        the MU could collapse. This is the
tralization) in the field of income   tions (flexibility of wages, move-     central message of Prof. De
policy, social policy, employment     ment of labour and capital) and        Grauwe in an interview given to
and labour market policy, in par-     demand-side oriented national fis-     the Flemish newspaper De Morgen
ticular to improve the compara-       cal policy instruments. The latter     on 18 March 2006. Prof. De
tive advantages and thus the com-     will come more and more under          Grauwe is, as one of the most dis-
petitiveness of the MU economies      pressure because of the require-       tinguished monetary economists,
and the European economy as a         ments to achieve the Maastricht        also a member of the Group for
whole, which, in the world of neo-    and Stability Pact criteria            Economic Policy Analysis, which is
liberal theories, would mean          (although these criteria may be        advising EC President Barroso. He
more deregulation, but, in euro-      viewed as the simplistic, “vulgar-     was also a member of the Belgian
cratic practice - presumably -        economics” approach of mone-           Senate until 2003. EUWatch is
more re-regulation at the supra-      tarist epigones). Thus, if the EU      grateful to De Morgen for authori-
national level.                       member states refuse to provide        zation to publish this interview in
                                      more funding for the Union budg-       English.
To guarantee all these things         et – to counteract economic dis-
would inevitably lead to Political    parities between the member            Peter Henseler studied law and eco-
Union. Centralization of monetary     states (in particular those of the     nomics, former Austrian delegate to
policy alone would thus turn out      MU, but even more with respect to      the Budget Committee of the Council,
to be insufficient, because of the    the MU candidates) – the second        now independent consultant and
political limits of purely economic   best solution would be to maintain     reader in Public Finance, European
integration and – apart from this –   sufficient budgetary autonomy at       Economic Policy and European Law.

Earlier this year Prof. De Grauwe gave an interview       Since the rejection of the European Constitution,
to Johan Corhouts for the Belgian daily De Morgen         Europe has been evolving towards a large free-
(18 March 2006) which is reproduced here with kind        trade area. You must be pleased about that?
permission.                                               ‘A large free-trade area remains the only feasible
                                                          option for Europe. It is an illusion that we can
Paul De Grauwe is a full professor at the Faculty of      achieve political union in Europe in the near future.
Economics and Applied Economics, Department of            Political unification has failed – but this poses a seri-
Economics, University of Leuven. He was born in           ous problem for monetary union. The latter is at risk.
1946 in Ukkel, Brussels, educated at the Catholic         Political union is the logical end point of monetary
University of Leuven and the John Hopkins University      union. If that political union fails to materialise, then
in Baltimore. He has been Professor or Visiting           in the long term the euro area cannot continue to
Professor of a number of European and American uni-       exist.’
versities. He is a regular correspondent of the
Financial Times and was recently appointed member
of the Group of Economic Policy Analysis advising the
European Commission President Barroso                                                          Continues on page 7

Continues from page 6                                        many other fields it is lagging behind. One example is
                                                             the automobile industry. Along with Japan, Europe has
Why not?                                                     had much greater success in producing energy-efficient
‘This has to do with the wide disparities within the euro    cars. The USA is hopelessly behind in this field. The super-
area. Italy, for example, is really on the road to ruin.     power cannot even manage to sell cars outside its own
The main reason for this is that it has suffered a severe    country. In the production of mobile telephony systems,
loss of competitiveness. Italian prices are 20% too high.    too, the USA lags behind Europe. Europe is without doubt
In the past, before the introduction of the euro, each       holding its own in the technological field. That is not the
country had the option of devaluing its currency.            problem.’
Devaluation was a “big bang” to put the economy back
on track. It would have been possible to make Italy’s        What is the problem?
prices 10 or 20% lower than Germany’s at a stroke, and       ‘We have built a system of social security that gives peo-
thus give the economy new impetus. Devaluation is no         ple too many incentives not to work. They can easily
longer an option.’                                           interrupt their career and leave the labour market early.
                                                             For many people it is financially unattractive to work. We
What happens now?                                            should not be surprised, then, that economic growth is
‘The only way for Italy to put its economy back on its       subdued.
feet is to lower prices below the European average.
Average inflation in the euro area is 2%. Italy’s needs to   ‘That is the great difference between the European Union
remain below this level for 10 years, which is possible      and the United States. The US economy is growing faster.
if the Italian Government pursues a very restrictive         In terms of per capita growth, however, the difference is
budgetary policy. This would be an extremely painful         considerably less. If we look at productivity, and at the
exercise, entailing further unemployment. Italian econ-      growth per hour worked, there is hardly any difference
omists all agree on this. The euro is a bad thing for the    between Europe and the USA. Working Europeans match
Italian economy. I am afraid that Spain is also evolving     up to working Americans in this regard. The difference is
in the same direction. If that happens, we shall be          that there are fewer working-Europeans, and that we pre-
faced with a major problem.                                  fer a model that enables us to relax more. The number of
                                                             hours we work has fallen, whereas the figure for the USA
‘Political union could mitigate that scenario. For exam-     has risen. It is not surprising, then, that its growth is
ple, it would be possible to decide to redistribute          faster. This means that Americans can consume more, and
funds, and to start re-arranging budgets. Well-off coun-     perhaps they are happier that way. We prefer to take hol-
tries could come to the assistance of those in financial     idays.’
difficulties. The European budget could also be drawn
upon to stimulate the economy. Now that nobody               Should Europe adopt the American model?
appears to want that political union, it begs the ques-      ‘No. That does not appeal to me. Do we really need to
tion whether monetary union was such a good idea. I          work to buy a second or third car? I enjoy my work. I have
would almost venture to predict that, in the longer          an interesting job, but there are those who do not. I can
term, monetary union will collapse.’                         understand that they would rather take holidays.’

                                                             How much longer can such a view be maintained now
What kind of time frame are we talking about?                that competition with China and India is becoming
‘Not next year; it will become more likely within 10 or      ever stiffer and that we are seeing our industry disap-
20 years. There is not a single monetary union that has      pear to those countries?
survived without a political union. They have all col-       ‘Many people are saying that, but it is only half of the
lapsed. There are invariably large shocks. A monetary        story. It is true that China and India are growing rapidly
union becomes very fragile without a political frame-        and are taking over some of our activities, but, as in the
work. With the exception of the Don Quixotes, such as        past, that kind of competition gives rise to a great many
Guy Verhofstadt, I cannot see anyone pushing the case        opportunities to increase our prosperity. I am not pes-
for political union. We have reached a nadir in terms of     simistic about this.
political unification.’
                                                             ‘It goes without saying that adjustments will have to be
For six years now, Europe has been soldiering on             made. It is a change that will entail definite job losses in
with the implementation of its strategy to inject            some sectors, but job creation in others. There is no fun-
more dynamism into its economy. Is there any point           damental difference between this situation and the
in continuing the so-called ‘Lisbon process’?                developments of the past 50 years, however. The figures
‘Lisbon was a political fiction. The Lisbon process is       show that industrial employment declined much more
best buried. The whole process, for that matter, is          rapidly between 1975 and 1985 than it is doing now. There
based on the wrong diagnosis. Many people think that         is no real difference between what happened then and
Europe is technologically inferior to the USA – but that     what we are seeing today. Those years also saw competi-
is incorrect. It is true that the USA has the edge over      tion from low-wage countries; it was just that people did
Europe in the field of information technology, but in        not talk in terms of globalisation back then.’


                                                              and promises a lot of things and then the budget gets
                                                              out of hand and that creates divergent movement which
                                                              then becomes very difficult to adjust to. So these are
                                                              the two reasons why I believe that without more politi-
                                                              cal union a monetary union will be difficult to sustain. I
                                                              am not predicting that the eurozone will disappear, I am
                                                              just predicting that there will be big problems for a
                                                              number of countries and then at some point the temp-
                                                              tation to get out may become overwhelming.

                                                              The east European countries are facing serious prob-
                                                              lems even now. One can see, for example, what is
                                                              going on in Hungary. What would you suggest for
                                                              these countries, what can they do at this stage?
                                                              Well of course the new member states are not yet part
                                                              of the eurozone, except for Slovenia that will soon join.
Paul De Grauwe is a full professor at the Faculty of          So the problems do not arise in the same way for the
Economics and Applied Economics, Department of                new member states because they always have the
Economics, University of Leuven. He was born in 1946          option of adjusting the exchange rate if something hap-
in Ukkel, Brussels, educated at the Catholic University       pens that they cannot easily adjust to. Of course they
of Leuven and the John Hopkins University in                  have joined the European Union and that creates new
Baltimore. He has been Professor or Visiting Professor        pressures and new problems but personally I think this
of a number of European and American universities. He         can be overcome. However not only Hungary is in a dif-
is a regular correspondent of the Financial Times and         ficult situation but also other central European coun-
was recently appointed member of the Group of                 tries. But I would not talk about the new member states
Economic Policy Analysis advising the European                as a whole because there are so many differences
Commission President Barroso                                  among them. Some countries, like Slovakia, are doing
                                                              relatively well while others have more problems, like
If there are problems with the euro in Western                Hungary. It turns out that it is very difficult for open
Europe what are your thoughts about the east                  countries, especially countries that have recently
European countries?                                           opened to manage the macroeconomy in a stable way,
I think the problems are the same for the east and west       and I think the Hungarian experience shows this.
European countries. East European countries, when
they join the euro - which is their intention since they      In Hungary, for instance, one of the biggest problems
have signed to do so if the conditions are satisfied - will   is that the country ran into debts decades ago and
face the same problem as in the West. And this problem        now its foreign debt is very high, and since the inter-
is that in the absence of political union there is no         est rate is higher than economic growth the debt-to-
mechanism that tries to redistribute across countries         GDP ratio is increasing. Is there any solution in this
when they are hit by different shocks, in the way we          situation?
have within nation states, where we see that there is         Well I think this is not the first time this happens. Let
redistribution through a centralised budget when              me refer to my own country, Belgium, where we were
regions are experiencing different economic conditions.       almost world champions in government debt and exact-
That is one reason and it has long been identified by         ly the same situation happened. The nominal interest
economists. The other reason why it is difficult to sus-                                                        ,
                                                              rate was higher than the nominal growth of GDP which
tain a monetary union without political union is that         creates a dynamics of increasing indebtedness. But this
when nation states in Europe continue to exist as they        can be counteracted by creating a surplus in the pri-
do, you have what we call ‘idiosyncratic shocks’ all the      mary budget, making sure that spending (spending with-
time. This has a socio-political origin and developments      out adding the interest payments) has a surplus that
in one particular country might be rather different from      generates the revenue to service the debt.
other countries because the political systems are differ-
ent. There are elections, and some politician comes out                                             Continues on page 9

Continues from page 8                     that in the short run not much can be     capital mobility and that made it pos-
                                          achieved. Look at how the discussions     sible. The exchange rate was fixed at
 In this way the debt-GDP ratio can       have been concerning the budget.          the end of the forties and remained
be decreased. That is what hap-           Most people do not want to increase       so in the fifties and a large part of
pened in Belgium. It was not easy,        the size of the European Budget. And      the sixties. There were few crises
but we have reduced the debt-GDP          there is no momentum today to go          (with the pound Sterling in the mid-
ratio from a level of close to 140        forward, yet I think that there is a      sixties and then with the German
percent in the early 1990’s to about      responsibility of the Commission to       mark), but on the whole there was
95 percent today.                         continue, to hammer on this because       stability. However, capital could not
                                          this is an unfinished business.           move freely. As soon as capital start-
But, of course, that meant reducing                                                 ed to move freely the system col-
spending, increasing taxes for            This year is the fiftieth anniversary     lapsed. So applying the Bretton
many-many years. So, it can be            of the Hungarian revolution. At the       Woods system today with fixed
done but it is tough and politically      time, it was destroyed but later          exchange rates would mean that we
difficult.                                people accepted the communist             turn back the financial integration in
                                          regime because there followed a           Europe that we have achieved. And,
There is a difference between a           fast economic growth and an               okay, fine with me, but I am not sure
country that is indebted to its           improvement in the people’s every-        we want to do this. We are in a world
own citizens and a country that is        day life. Do you think that the main      where trade integration and financial
indebted to foreigners, because           problem in the European Union             integration are two sides of the same
foreigners can exert more pres-           might be that there are no really         coin. I mean, turning back financial
sure on the country. There are a          good results? Do you think that           integration in Europe would also
lot of examples from the develop-         projects like airbus, or fast train       mean turning back trade integration.
ing world. What can be done in            would be better than forcing the
this case?                                liberalisation of services of general     Is it not possible to establish some
Yes of course one has to make a dis-      interest?                                 kind of financial fund that can
tinction. When the debt is held by        Yes, I agree with you that with suc-      counterbalance the rapid capital
foreigners that creates a stronger        cessful projects people’s attention       movements?
pressure. But the conditions to get       can be focused on the positive things     Do you mean some kind of European
out of indebtedness are definitely        you mentioned. But one can have           Monetary Fund? That will not work.
the same as those when government         doubts that this can be applied to the    In the European monetary system
debt is held domestically. A problem      process of political unification. Now I   there was a system of swap agree-
arises of course, when large sec-         do not want to be misunderstood. All      ments. Each central bank was com-
tions of the economy are not com-         I am saying is that here we have the      mitted to provide its own currency
petitive. This seems to be the case       eurozone, which is a great achieve-       when another central bank got into
in Hungary. Then macroeconomic            ment in a way. It is something excep-     trouble. When there was speculation
adjustment will be necessary and          tional. I am just saying that if you      against the lira, people were selling
finally it will hurt many people. Any     want to preserve it in the long run we    lira and buying mark, then the
government that tries to do it will       are forced to go to ask for more polit-   Bundesbank was there to provide the
not make itself popular and this          ical union. Most Europeans tell me:       necessary liquidity, to provide the
seems to be the case in Hungary           we do not want political union; then      German mark. But at a certain
today.                                    I, as an economist, say that’s fine, I    moment the size the speculative
                                          mean it is not a problem at all if you    movements became so big that the
Coming back to Western Europe and         do not want a political union. How        German Bundesbank refused to go on
the eurozone, if we can clearly           can I say that you are wrong? You         doing this. So I do not think that this
foresee what will happen, as an           want to keep your own little place        is a realistic goal, we cannot go back
adviser to the Commission and Mr.         and your own habitat and this is fine,    to this. We would have to go back to
Barroso, what is your advice?             and I have no problem with this. But      the situation of the seventies and this
Well I would certainly advise that the    think also about the consequences         has been shown to be unstable. So I
Commission should try to convince         and this could very well be that in the   do not think that it is a good option.
the member states to move forward         longer run the eurozone will disap-
in the integration process. There is a    pear.                                     So this means that we have two
kind of integration fatigue in Europe                                               options: either more political union
today. Most countries just want to        Do you think that there might be a        and a centralised budget, or face
move to a certain integration, and it     solution in between, something            the foreseeable economic and
seems most people think that it is        similar to the Breton Woods agree-        social problems.
enough. It is clear that we need more     ment?                                     That is right. That is the choice we
political integration to make the         The Bretton Woods agreement was           have. If we want to keep the euro-
eurozone a sustainable institution in     very unstable. It would not last if       zone as an entity, then in a way we
the long run. The commission and the      applied today. Do not forget that the     are condemned to move forward
commission president have a great         Breton Woods agreement was an             towards political union. If we do not
responsibility because they are the       agreement among countries after the       want political integration then the
only institutions that can make clear     Second World War that maintained          future of the eurozone in the longer
that this has to be done. Now I realise   fixed exchange rates. There was no        run is at stake.

             THE BIRTH AND
             DEATH OF THE EURO

             The political project is to help turn the     referring to the two States of divided
             European Union into a highly centralised      Germany. Now Gorbachev was permit-
             Federal-style State under the political       ting German reunification virtually
             hegemony of Germany and France, with          overnight. Mitterand tried but failed to
             the other EU members grouped around           talk him out of it. To reconcile a worried
             them.                                         France to the prospect of a reunified
                                                           German State, with 17 million extra
             "We need this united Europe," said            Germans on her eastern border, Kohl
             Spanish Premier Felipe Gonzalez on the        agreed to abolish the Deutschemark, the
             eve of locking together the eurozone          great symbol of post-war Germany's eco-
             exchange rates in 1998. "We must never        nomic achievement, and share with
             forget that the euro is an instrument of      France the running of a new European
             this project." Commission President           currency.
             Romano Prodi wrote at the same time:
             "The pillars of the nation state are the      In return France agreed to closer politi-
             sword and the currency, and we changed        cal union with France, a common EU for-
             that."                                        eign and security policy, and in due time
                                                           an EU army with the French-German duo
             German Chancellor Gerhardt Schröder           effectively commanding it. In euro-jar-
             said in 1999: "The introduction of the        gon this was Monetary Union for Political
             euro is probably the most important inte-     Union. Or, put crudely, it was the
             grating step since the beginning of the       Deutschemark in exchange for the
             unification process. It is certain that the   Eurobomb! Germany is forbidden by the
             times of individual national efforts          post-war treaties to have nuclear
             regarding employment policies, social         weapons. This way she could get her fin-
             and tax policies are definitely over. This    ger on a collective EU nuclear trigger.
             will require to bury finally some erro-       Germany and France would captain an EU
             neous ideas of national sovereignty.          world power together, as they could no
             National sovereignty in foreign and secu-     longer hope to be world powers sepa-
             rity policy will soon prove itself to be a    rately. As foretaste of the future they
             product of the imagination."                  established that same year a Franco-
                                                           German army brigade, with French and
             FRANCE AND GERMANY - MID-                     German officers jointly in command. It
                WIVES TO THE EURO                          still exists as the nucleus of the coming
                                                           EU army.

             The euro would not exist if Germany's         Naturally the citizens of the various
             Chancellor Helmut Kohl and France's           European countries did not want to abol-
             President Francois Mitterand has not          ish their national currencies. In Denmark
             decided on it in the early 1990s. For         and Ireland the people had to be asked in
             them the euro was essentially a political     referendums. In 1992 the Danes rejected
             scheme to reconcile France to Germany's       the Maastricht Treaty, which was the
             sudden reunification. "I like Germany so      legal basis for the euro.
             much that I prefer two of them," France's
             President Charles de Gaulle said once,                             Continues on page 11

Continues from page 10

Their europhile Government then pushed it through
by making them vote a second time, without making
any changes to the treaty. In France Mitterand held
a referendum on Maastricht, confident that it would
easily go through. It was the votes of France's over-
seas territories that won him a narrow 51% majority
and thereby helped to abolish the franc. The
German people were wholly against abolishing the D-
mark. Indeed recent opinion polls show that they
would very much like to have it back again.
Unfortunately their constitution does not permit ref-
erendums, so their eurofanatical political elite
pressed ahead regardless. British public opinion
forced John Major's Conservative Government to opt
out of the euro. Sweden has no legal opt out from
the euro, but its government has been unable politi-
cally to push it through. The "common position" of
the 15 EU Member States in their accession negotia-
tions with the 10 recent EU Members from Central,
Eastern and Southern Europe was that the newcom-
ers had all to agree to abolish their national curren-
cies and adopt the euro in due time - even though
Britain, Sweden and Denmark intended keeping their
currencies. There could be no clearer evidence of          Germany does not suit Ireland, and vice versa. The
the EU's fundamentally anti-democratic, imperialis-        EU Central Bank maintains the same interest rate
tic character. When the East Europeans were client         across the eurozone for economies at different
states of the USSR during the Cold War, the Russians       stages of the economic cycle, with different levels of
never told them that they must adopt the rouble!           productivity, different resource endowments and dif-
                                                           ferent degrees of exposure to economic shocks. The
   WHY COUNTRIES NEED THEIR OWN                            unsuitability of the ECB's one-size-fits-all interest
           CURRENCIES                                      rate regime is shown clearly by the contrast between
                                                           Ireland and Germany. The welfare of their respec-
It is not sentiment, but enlightened self-interest,        tive citizens requires different policies, but they
that makes people want to hold on to their national        must suffer the same one because the EU says so.
currencies. It is democracy in other words, the
desire for national independence and self-rule. All        THE "BLACK HOLE" OF THE EUROZONE
independent States have their own currencies. All                      ECONOMY
currencies belong to independent States. Possession
of its own currency enables a government to control        These days the eurozone looks more and more like
the rate of interest, which is the domestic price of a     an economic Black Hole. Its core economies,
currency, and with that the money supply and vol-          Germany's and France's especially, are in poor shape.
ume of credit in an economy, so that these may serve       When the euro was established Germany insisted
the interests of its citizens. Or to control the foreign   that the EU Central Bank be run like the German
exchange rate, the price of a currency in terms of         Bundesbank. It is independent of political control
other currencies, which governs the terms on which         and its sole brief under the Maastricht Treaty is to
a country conducts its foreign trade and which can         keep prices stable and inflation under 2%. The euro-
be vital for its economic competitiveness.                 zone economy may suffer deflation and job losses
                                                           may soar, but that is no concern of the ECB. Its
These policies are now decided for the 12 Member           deflationary policy mandate encourages recession
States of the eurozone by the European Central Bank        instead of countering it. In addition the Germans
in Frankfurt - theoretically in the interests of the       insisted that the eurozone members be bound by the
eurozone as a whole, in practice in the interests of       Growth and Stability Pact. This lays down that if
Germany and France, who make up half the euro-             countries run budget deficits of 3% or over of their
zone's population. Thus at present Germany needs           national product a year because of recession,
low interest rates to encourage investment and             falling taxes and rising unemployment, they must cut
reduce its nearly 5 million unemployed. The Republic       public spending further - which makes recession
of Ireland had an economic boom from 1993 to the           worse - or else face fines that could amount to of bil-
present. It has needed higher interest rates to            lions of euros.
reduce inflation and hold back soaring prices, espe-
cially for dwellings. The interest rate that suits                                           Continues on page 12

Continues from page 11                 it, as they no longer have nation-     er regions and social classes pay
                                       al currencies of their own.            on average lower taxes and
The irony is that when Germany         Another cause of strain is that        receive more public services than
and France found themselves in         China's currency, the yuan, is         their richer areas and classes.
breach of these rules, the EU          linked to the dollar, so that if a     These expressions of national sol-
Commission did not seek to bully       weakening dollar makes US              idarity mean that there exist
them like it bullied smaller-size      exports more competitive in            automatic resource transfers
Ireland and Portugal when they         eurozone and other world mar-          from richer regions within a coun-
broke the rules.                       kets, it makes China's exports         try to compensate poorer regions
                                       more competitive too.                  to some extent for the drawback
The other irony is that when                                                  of their not having their own cur-
pushing for the euro Germany's         Is was therefore no wonder that        rency, interest rate and exchange
rulers were so busy seeking to         in September 2003 the people of        rate, with which to balance their
impose monetary discipline on          Sweden, one of the most educat-        payments with the rest of their
the Italians and others, that they     ed and politically sophisticated in    national economy. Despite this,
took their eye off the ball and        Europe, said No to jumping into        poorer areas suffer from migra-
themselves joined the eurozone         the eurozone's economic Black          tion of capital and workers to
at too high an exchange rate.          Hole by 56% to 42% on a turnout        richer areas within national
They exchanged the D-mark for          of 81% of voters. Sweden's econ-       economies, but less than what
the euro at a rate which burdened      omy is doing very well outside the     would happen in the absence of
themselves with an implicitly          eurozone, as is Britain's and          these fiscal transfers.
overvalued currency. This makes        Denmark's.
it harder for their export indus-                                             There is no such solidarity in the
tries to sell abroad, and easier for         WHY THE EURO                     EU monetary union however ,such
foreign firms to sell to Germany.            CANNOT LAST                      as to induce the rich Eurozone
This has increased German unem-                                               countries to compensate the
ployment. All this is due to the       One can confidently predict that       poorer ones for loss of key eco-
political love-affair with the euro    the euro will not last. The only       nomic powers. Of course some
of Germany's political elite. .        question is how long will it con-      international solidarities exist
                                       tinue. It might be gone in a few       between EU members, but noth-
When the euro was launched in          years, or it might last decades.       ing that compares to the solidari-
1999 the EU's europhiles and           But certain it is that as long as it   ty that binds national States
eurofanatics     said confidently      lasts it will generate problems        together and makes their citizens
that it would soon become a            and tensions for the peoples of        willing to pay taxes to a common
strong world reserve currency like     the eurozone.                          government because it is THEIR
the dollar, as people would                                                   government, which they willingly
switch from dollars into euros.        "There is no example in history of     obey, with all the authority and
Instead the opposite happened.         a lasting monetary union that          legitimacy that derive from that.
The euro weakened against the          was not linked to one State," said
dollar and British pound. Indeed       Otmar Issing, German governor of       EU monetary union is not a fiscal
in its first few years it was the      the EU Central Bank. History is        union. Taxes and public spending
euro's weakness that proved to be      full of examples of abandoned          are overwhelmingly national in
the main thing helping the com-        currency unions. Where now is          the EU, and likely to remain so.
petitiveness of the eurozone           the USSR rouble, the Austro-           Brussels funds amount to a mere
economy, Germany's and France's        Hungarian         thaler,      the     1.2% of the EU's annual gross
in particular.                         Czechoslovak crown or Yugoslav         product, whereas national taxes
                                       dinar?     Yet these currencies        and spending typically amount to
Now this looks like changing. The      belonged to real, long-estab-          one-third or more of national
coming years could put the euro-       lished States, multinational polit-    products. There is thus no realis-
zone under great strain. The           ical unions that were also mone-       tic likelihood of the richer EU
Americans are likely to want to        tary unions and, more important-       countries being willing to pay the
boost their economy by acting          ly, that were fiscal unions, bound     vastly greater sums to Brussels in
aggressively to let the dollar fall,   together by common taxes and           the name of a common
so    stimulating US exports to        services, which is something the       "Europeanism" that would com-
Europe and making EU exports to        EU is not and never can be.            pensate the poorer EU countries
America less competitive.         A                                           for surrendering their ability to
major rise of the euro against the     All sovereign States are fiscal as     use a national exchange rate and
dollar would threaten the com-         well as monetary unions. They          interest policy to balance their
petitiveness of eurozone industry,     have common taxes and public           national payments.
but there is nothing individual        services throughout their territo-
eurozone countries can do about        ries. This means that their poor-                   Continues on page 13

Continues from page 12                 reasons and there is nothing more      make the national question, the
                                       rigid than a monetary union. This      right of nations and peoples to
The only thing that countries          is the fundamental reason why the      self-rule and self-determination,
threatened with such imbalance         euro is bound to generate tensions     the principal issue of European
inside the eurozone can do about       and antagonisms between the dif-       politics for years to come. This will
it, is to accept lower wages and       ferent members of the eurozone as      happen as countries which in the
profit rates compared to their         long as it endures. The common         past possessed empires and which
competitors, or, if people are not     interest rate and exchange rate        through them suppressed the
willing to do that, to join the job-   that suit some some countries will     national independence of others,
less at home or else emigrate          not suit others, and people will       discover the drawbacks of being
abroad. Neither the eurozone nor       gradually realise that their govern-   ruled by foreigners, that is, by
the wider EU has the solidarity        ments have surrendered key poli-       people they do not elect, who are
that marks a nation or people.         cies for advancing the national        not responsible to them and who
There is no EU "demos", no EU          welfare because of the folly of        pursue policies that are against
national community, no EU politi-      their uncritical europhilia.           the basic interests of their citi-
cal "We, " with which citizens can                                            zens.
identify and accept the authority      For this reason most monetary
of, and for which is some circum-      economists believe that the euro is    Anthony Coughlan is Senior Lecturer
stances they are willing to die.       bound to fail, although it could       in Social Policy at Trinity College,
Rather there are the EU's many         last years or even decades, as the     Dublin, and Secretary of the National
nations and peoples.                   rouble and thaler did, while gener-    Platform EU Research and Information
                                       ating policy conflicts and interna-    Centre, Ireland. He has been chair-
Foreign exchange rates of curren-      tional tensions as long as it does     man of The European Alliance of EU-
cies are always fixed for political    last. In fact the euro is likely to    critical Movements(TEAM).

1807      “My brother, if you mint       John Major, British Conservative         richest country in Europe is
coins, I want you to adopt the same      politician, Prime Minister 1991-         Switzerland, which is not even in
divisions of value as in French          1997. November 1996.                     the EU, never mind the Euro.”
money... I’ve already done the same                                               ‘In or out - the case against the
thing for my own Kingdom of Italy.       1997     Political unity can pave the    Euro’, Fabian Society Pamphlet by
The confederated Princes have done       way for monetary unity. Monetary         Janet Bush and Larry Elliott, Labour
the same thing. That way there will      unity imposed under unfavorable          party policy wonks. 3 August 2002.
be uniformity of currency through-       conditions will prove a barrier to the
out Europe, which will make trading      achievement of political unity.          2002     “[What is needed is the]
much easier.”                            Milton Friedman in: Wall Street          Europeanisation of everything to do
Napoleon Boneparte (Napoleon I),         Journal 1997-06-20                       with economic and financial policy.
6 May 1807, in a letter to his broth-                                             European Monetary Union has to be
er Louis, King of Naples.                1998     “The single currency is the     complemented with political union -
                                         greatest abandonment of sovereign-       that was always the presumption of
1808     “Any nation which gives up      ty since the foundation of the           Europeans.”
its freedom in pursuit of economic       European Community ... it is a deci-     Gerhard      Schröder,     German
advantage deserves to lose both.”        sion of an essentially political         Chancellor from 1998 who does NOT
Thomas Jefferson, US President           nature. We need this United Europe       dye his hair. Interview, 2002. Well
1801-1809.                               ... we must never forget that the        that’s pretty clear.
                                         Euro is an instrument for this proj-
1880s “Before long, all Europe,          ect.”                                    2005     “The euro for me is an
save England, will have one              Felipe Gonzalez, Socialist Prime         issue with a specific economic
money”.                                  Minister of Spain from 1982 to 1996.     dimension because it’s an economic
William Bagehot, the Editor of “The      May 1998.                                union that you’re joining. Even
Economist”, the renowned British                                                  though politically there is a case for
magazine.                                1999      “The single market was         joining, economically there isn’t
                                         the theme of the Eighties. The sin-      that case at the present time... The
1891       “The finance of the coun-     gle currency was the theme of the        issue is what is good for Britain’s
try is ultimately associated with the    Nineties. We must now face the dif-      interest rates and investment and
liberties of the country. It is a pow-   ficult task of moving towards a sin-     jobs.”
erful leverage by which English lib-     gle economy, a single political          Tony Blair Frost on Sunday (TV
erty has been gradually acquired. If     unity.”                                  show) 09 January 2005
the House of Commons by any possi-       Romano Prodi, EU Commission
bility loses the power of control of     President, speech to European            “A European currency will lead to
the grants of public money, depend       Parliament, 14 April 1999.               member-nations transferring their
upon it, your very liberty will be                                                sovereignty over financial and wage
worth very little in comparison.”        1999      “On 1 January 1999 with        policies as well as in monetary
William Ewart Gladstone, British         the introduction of the Euro ... an      affairs... It is an illusion to think
Liberal Prime Minister 1868-74,          important part of national sover-        that States can hold on to their
1880-85, 1886, and 1892-94. Speech       eignty, to wit monetary sovereignty,     autonomy over taxation policies.”
in the House of Commons, 1891.           was passed over to a European insti-     Hans Tietmeyer, Bundesbank
                                         tution ... The introduction of a com-    President. Date uncertain.
1970”Economic and monetary               mon currency is not primarily an
union thus appears as a leaven for       economic, but rather a sovereign         “The process of monetary union
the development of political union,      and thus eminently political             goes hand in hand, must go hand in
which in the long run it cannot do       act...political union must be our        hand, with political integration and
without”                                 lodestar from now on: it is the logi-    ultimately political union. EMU is,
The Werner Report (Pierre Werner         cal follow-on from Economic and          and always was meant to be, a step-
Luxembourg’s Prime Minister)             Monetary Union.”                         ping stone on the way to a united
                                         Joschka Fischer, German Foreign          Europe.”
1991     “There is no example in         Minister and Vice Chancellor since       Wim Duisenburg, President of the
history of a lasting monetary union      1998. Former Communist firebrand         European Central Bank. Date uncer-
that was not linked to one State.”       and photographed beater-up of a          tain.
Otmar Issuing, Chief Economist of        policeman (ironically called Mr
the       German        Bundesbank       Marx). Speech to the European
Council,1991.                            Parliament, January 1999.

1996      “A single currency is about    2002    “The richest state in Asia is    Source:
the politics of Europe. It is about a    Singapore - a small island with
Federal Europe by the back door.”        almost no natural resources; the         ML/Europe/08-Euro.html

            ON THE EURO

            Sweden became a member of the                had claimed that the euro could trans-
            European Union in January 1995. Since it     form the EU into a federal state, knowing
            was not formally granted the right to        that the majority of the Swedish people
            remain outside the eurozone during the       were opposed to such a development.
            membership negotiations, it is bound by      The prime minister had also publicly
            the TEC to join the Monetary Union. The      mentioned that the euro would not fulfil
            Swedish Government declared prior to         the criteria of an Optimum Currency Area
            the negotiations on membership that          (OCA). However, after an extraordinary
            Sweden would adopt a final position on       party congress in March 2000, the Social
            the euro “in the light of further develop-   Democratic Party decided to advocate
            ments and in accordance with the provi-      Sweden’s joining the eurozone. Three
            sions of the Treaty”.                        parties in parliament, however, still
                                                         opposed it, namely the Centre Party (ex-
            In December 1997, the Swedish                Farmers’ League), the Left Party (ex-
            Parliament decided that Sweden would         communist party) and the Green Party.
            not join the eurozone on the date of its     These three ‘No’ parties represented
            final introduction on 1 January 2002. The    only about 19% of the voters. The
            Swedish people had been sceptical of the     remaining four parliamentarian parties
            EU since the narrow referendum victory       were all in favour.
            for EU membership. Furthermore, the
            then-ruling Social Democratic Party was               DAVID’S BATTLE
            internally divided on whether the euro               AGAINST GOLIATH
            was desirable for Sweden or not. It was
            therefore too early and politically dan-     The difference between the financial
            gerous for the Social Democrats to make      resources of the ‘Yes’ and the ‘No’ cam-
            a clear decision and statement on the        paigns was substantial. Whereas the
            euro and the political parties agreed that   Confederation of Swedish Enterprises
            the introduction of the single currency      contributed over 55 million euro to the
            would not be possible without the            ‘Yes’ campaign, about 13 million euro of
            approval of the Swedish people. So in        public funds were divided between the
            March 2003, the Parliament decided that      two campaigns, of which a slightly larger
            a national referendum was to be held,        portion was given to the ‘Yes’ side. In
            setting the date to 14 September 2003.       effect, the ‘No’ campaign relied almost
                                                         exclusively on the allocated public funds.
            Prime Minister Göran Persson had earlier
            been sceptical of the single currency and                         Continues on page 16

Continues from page 15
                                                         Only a few commentators concluded that the popu-
There was also a remarkable difference in terms of       lation had actually understood the question, and
media coverage. A survey of the 38 most important        that it was neither isolationist, nor narrow-minded,
newspapers established that during one week of the       but that it simply did not share the opinions of its
campaigns’ final stages, leading figures from the        political leaders.
‘Yes’ campaign were mentioned in 6069 news items,
while their counterparts from the ‘No’ campaign                  WHY DID THE PEOPLE VOTE
were only mentioned in 1939 news items. In addi-                      ‘YES’ OR ‘NO’?
tion, proponents of the euro controlled nearly all
major institutions and organisations, including the      The main arguments among the part of the popula-
parliament, the government, the most powerful            tion that voted ‘Yes’ were that the euro would be
business organizations and the media. A large part of    positive for Sweden’s influence within the EU, for
the euro-critics within the “chattering classes”         peace in Europe and for the Swedish economy. On
would not even participate in the euro debate, since     the other side, the most important issues for the
– as was reported – “it could be negative for their      ‘No’ voters were democracy, national sovereignty
future careers”.                                         and an independent monetary policy in relation to
                                                         interest rates. Regarding the latter, it was feared
The debate was led in a climate of intolerance.          that the Swedish economy could find itself out of
People who opposed the euro were accused by well-        synchronization with economic developments in the
known journalists and established politicians of         eurozone. Maintaining an independent monetary pol-
being uneducated, retarded, egoistic, xenophobic,        icy and currency would allow Sweden to stabilise the
conceited and isolationists, and of having no interest   national economy without any influence from the
in, or understanding of Europe.                          European Central Bank, since a country within the
                                                         eurozone that faces an external economic shock, or
Although around 80% of the members of parliament         internal structural difficulties, would not benefit
supported the euro, the Swedish population rejected      from the advantages of an independent monetary
the single currency with 56% against 42%. The            policy. In the eurozone, the national governments
turnout was high, with 82.6% of eligible voters. The     have no option but to accept the common interest
parliamentarian majority realized that it could not      rates and exchange rates that apply throughout the
ignore the verdict of the people and promised to         European Union. This could become problematic
respect the result of the referendum.                    when the economic and social situation in one coun-
                                                         try differs significantly from another.
Given these facts, it is likely that the enormous
resources of the ‘Yes’ campaign have been more of a      Of particular significance for the outcome of the ref-
handicap than an advantage, since the people did         erendum was the influence of five cabinet officials,
not want to be “bought” by the political establish-      including from the Minister of Industry and
ment and “brainwashed” by the media.                     Commerce, who opposed the euro. Although Prime
                                                         Minister Persson strongly disapproved of their out-
          THE REACTIONS TO THE                           spoken criticism, he had to tolerate their presence in
          REFERENDUM OUTCOME                             his government due to the strong anti-euro opinions
                                                         within the ruling Social Democratic Party. Broad lay-
The media, political leaders and leading social per-     ers of the population considered it undemocratic
sonalities criticised the population for not having      when Persson later ordered his cabinet officials to be
understood the values and virtues of the EU and the      loyal to him and not to participate actively in the
single currency. Former Prime Minister Carl Bildt pro-   ‘No’ campaign.
claimed that “The Swedish people have always been
isolationists,” while Marciej Zaremba, a respected       On his part, Persson argued that a European single
journalist, maintained that the Swedish people’s         currency was an instrument for guaranteeing peace
reluctance to give up the possibility to run an inde-    throughout Europe. He claimed that Sweden con-
pendent monetary policy was a “first step to             tributed to this important and noble cause by partic-
racism”. And whereas Swedish author Jan Guillou          ipating in the currency union. He also said that if the
commented: “I hope that the Swedish people are not       euro was introduced, 100,000 new jobs would be
also against electricity”, the Minister of Foreign       created in the public sector and that a typical house-
Affairs, Laila Freivalds, claimed immediately after      hold would save more than 3000 euro annually.
the referendum result that her foreign-policy mission    Clearly, however, his argumentation did not have any
was to “further integrate Sweden into the EU”.           observable effect on public opinion.

The disrespect, denial and the lack of understanding
of the message from the people were astonishing.                                           Continues on page 17

Continues from page 16
                                                               THE FORECASTS OF THE ‘YES’ SIDE
                                                            During the euro-campaign, advocates of the euro had
According to a pre-referendum survey, 25% of those          warned repeatedly that a ‘No’ vote would result in a
who had voted for membership in 1994 were planning          weaker currency and higher interest rates, leading
to vote ‘No’ in the euro-referendum. Only 8% of those       among others to substantial economic problems. The
who had voted ‘No’ to the EU had eventually come to         political elite attached considerable weight to the
favour the EMU. The general public did not seem con-        prospect of Sweden’s position in the EU being weak-
vinced that further political and economic integration      ened by a decision to remain outside EMU.
was desirable.
                                                            However, the gloomy picture painted by the ‘Yes’
Whereas 72% of ‘No’ voters in the euro-referendum           camp has not become a reality.
were opposed to the idea of the EU becoming a
“United States of Europe”, only 6% were in favour and       The Swedish Crown is actually rather strong and
22% were undecided. Women were much more                    interest rates have declined. The general economic
strongly opposed to the euro than men. Whereas 62%          trends are above the average in the eurozone. In
against 36% of women voted ‘No’, their male counter-        addition, it is not generally perceived that Sweden
parts expressed their negative opinion with 50%             lost any influence in the EU as a consequence of the
against 48%.                                                referendum result.

The most critical group was that of young people,                         BUSINESS AS USUAL
often experiencing an insecure situation in the labour
market. They voted ‘No’ with an astonishing margin of       In my view, the message of the people has been dis-
70% against 26%.                                            respected, denied and misunderstood. That clear ver-
                                                            dict should have taught politicians a lesson, namely
Blue-collar workers opposed joining the euro by 69 to       to listen to the people, to debate EU issues and to
29 %, while white-collar workers were in favour by a        advocate a more limited and flexible co-operation
margin of 52 to 46 %. The unemployed voted ‘No’ by          framework within the EU. However, it is “business as
66% to 32% and students with a 58% against 38 %.            usual” on the agenda of the established political par-
                                                            ties in parliament. The EU in general and the EU
The arguments of the ‘No’ voters underlined that            Constitution in particular were hardly mentioned in
monetary union would drive the EU towards further           the campaigning for the national elections in
political integration, since it would be difficult to run   September this year.
a coherent monetary policy without centralised fiscal,
social, trade and foreign policies. The harmonisation       Furthermore, parliament rejected the idea to hold a
of taxes and the introduction of a common EU tax            referendum on the EU constitution, despite the fact
were predicted and it was warned that the Swedish           that opinion polls showed that a majority of the peo-
welfare state would be threatened, or at least nega-        ple wanted a say on this decisive issue.
tively affected. As history shows, currency unions
tend to end up in fiscal unions.                            As the proposed EU constitution stipulates that the
                                                            euro should be the only currency of the EU it opens
Given that proposals on the introduction of a common        the door to the possibility of introducing it in Sweden
EU tax had already been put forward, the Swedish            despite the people’s decision. In fact it could be
people had clearly expressed that it wanted these           implemented through the entry into force of the con-
issues to be dealt with at a national level.                stitution, over which the people would not be
                                                            allowed to vote. The will of the people would then
The Swedes had apparently understood the issue              clearly be disregarded by the political establishment.
quite well. They simply did not consider the eurozone
as an Optimum Currency Area. It was recognised that         The Swedish political parties continue to accept, and
it is difficult to run a coherent monetary policy that is   even advocate, further EU integration and centraliza-
optimal for all euro countries.                             tion of new areas of power. It is likely that this will
                                                            lead to further disbelief in politics and politicians and
In addition to that, the euro was considered to be an       a widening gap between the elected and the electors.
elitist project. People with lower incomes, often
women and young people, did not see the supposed            In the long run, it is probably politically impossible to
advantages of the euro.                                     avoid a public debate on EU issues and to continue to
                                                            transfer powers to the EU, without opening the door
Finally, as a common currency and a common foreign,         to new political parties with alternative EU agendas.
security and defence policy seemed to indicate that the
EU was about to become a federal state, the Swedish
people seemed to favour a limited form of European co-      Markus Nyman is working as researcher for the Swedish
operation within more democratic structures.                delegation in the IND/DEM group.

                           ROMANIA, FROM ADHESION
                           TO EURO ADOPTION

While waiting for the country report confirming 1             In any case, the euro is already a ‘national’ currency for
January 2007 as the date when Romania adheres to the          a lot of Romanian citizens, especially for those working
European Union, people working in the economic field          in West European countries and their relatives. Last
and at the National Bank of Romania discuss the future        decade’s extremely high inflation, the problems of the
calendar of integration into the eurozone. The more           bank system and a series of scandals related to the
necessary the discussion becomes, the harder it is to         bankruptcy of some investment funds have weakened
predict the adhesion shocks in an economy undergoing a        the belief in the ron and have turned the dollar, and
fragile balance.                                              now the euro, into alternative currencies and a means
                                                              for the population to keep their savings. This is why giv-
Even if the most macroeconomic indicators look good,          ing up the national currency will not be traumatic for
no one can afford ignoring the structural weaknesses of       the citizens. Furthermore, after the ron’s denomination
the Romanian economy and the constraints arising after        of 1 July 2005, the new notes have dimensions and
accession.                                                    colour schemes quasi-identical to those of the euro.

Since the end of 2000 Romania has entered a cycle of          The introduction of the euro will have a series of nega-
economic growth at a brisk pace, which peaked at 8.2%         tive effects, both on companies and on citizens, at least
of the GNP in 2004. A growth of at least 6% of the GNP        in the short term. The prices of a series of goods and
is expected this year. At least two of the criteria of nom-   services are very likely to increase, which will result in
inal convergence – the Maastricht criteria – have already     pay-rise requests. Romania will no longer be able to
been met. I am here referring to a public debt of only        apply currency devaluation to stimulate exports and
16.7% of GNP as at 1 June 2006, and a deficit of the con-     reduce home consumption in order to decrease the cur-
solidated budget that reached about 2.5% of GNP after         rent account deficit.
the last budgetary rectification at the end of August.
                                                              The successful transfer to the euro depends essentially
The disinflation process and the current account deficit      on the way the public power will be able to generate and
are still the most delicate issues when it comes to adopt-    apply public politics in the industrial, agricultural, finan-
ing the single currency. An inflation of about 6.5%–7%, far   cial-banking, fiscal and monetary fields, which would
above the limits of the convergence criteria, is predict-     accelerate the processes of reducing the development
ed this year. An inflation of 2.5% (December to               gaps and straighten a series of structural weaknesses in
December) is predicted for 2010 when the national cur-        the economy – especially those weaknesses related to
rency – the ron – will probably get integrated into the       competitiveness and productivity, which will suffer a
Exchange Rate Mechanism, ERM II. The National Bank            deficit in the average and high-quality workforce after
has created a scenario according to which the integra-        the EU labour market opens for Romanian citizens.
tion into the ERM II could take place in 2012, instead of
2010; in both cases the period of participation in this       To sum up, Romania must accelerate economic reforms
mechanism will be of two years.                               in order to meet the nominal convergence criteria,
                                                              which will decrease the period of participation in the
As far as the current account deficit is concerned, it is     ERM II and push for progress in reducing the gaps in the
expected to rise from 9.8% of GNP in 2005 to about 12%        real economy so that it can enter the euro zone
in 2010. The issue of its financing will arise even if the    between 2012 and 2014.
transfers from the EU to Romania increase within the
solidarity mechanisms and even if there is a higher vol-      CRETU T. CORINA, born 1967 in Bucharest, is a senator in
ume of foreign investments. As the de-etatization             the Romanian Parliament for the Social Democratic Party.
process has ended as a whole, the state’s receipts from       She graduated in 1989 at the Planning and Cybernetics
privatization will be insignificant the moment Romania        Faculty of the Academy for Economic Studies, Bucharest.
enters the ERM II.                                            Earlier in her career she became an expert at the
                                                              Romanian Senate and later Presidential Advisor with the
The adoption of the euro will have the following positive     rank of Minister. In 2004, she was elected Senator (MP) in
effects in Romania: lowering the macroeconomic risk,          the Romanian Parliament. In 2005 she became a member
raising financial discipline, eliminating some costs, elim-   in the Romanian Parliamentary delegation of Observers to
inating the currency risk; which should lead to reducing      the European Parliament, where she is a member of the
interest rates and raising investments.                       Committee on Economic and Monetary Affairs.

                  THE EVER DISTANT EURO


                  The single currency has been more popu-         would be reluctant to do.
                  lar in the less developed European coun-
                  tries and Hungary is a good example of          The east and central EU region (EU-8),
                  this fact. People have had negative expe-       however, does not follow a standard pat-
                  riences with their own currency (infla-         tern. As it is well known, Slovenia will be
                  tion, panics, etc.), and they look up on        able to introduce the euro in 2007, and
                  hard currencies, like the US dollar, the        the Baltic States are also very close to
                  Swiss frank, and now the euro. The para-        introducing the euro. One could say
                  dox is, however, that where it is more          therefore that the problem group is the
                  popular, there are more difficulties with       so-called Visegrád Group of countries
                  its implementation.                             (Czech Republic, Hungary, Poland and
                                                                  Slovakia), and their problem is lack of
                  Monetary union is not necessarily a bad         discipline. Even if that were the case,
                  idea in the European Union, however, the        one should not ignore the fact that these
                  Maastricht criteria, defined as rules of        four countries constitute 90 per cent of
                  entry to the club, were definitely not          the EU-8 economy, even if they form only
                  created for the countries of east and           half of the EU-8 states. Their problems
                  central Europe. These criteria were out-        are the typical of those faced by the
                  lined in order to commit the more infla-        eastern periphery of the EU.
                  tionary European economies to the old
                  standards of Bundesbank monetary poli-          Slovenia is a relatively advanced country,
                  cy. Ironically, it was difficult even for the   and it is far from typical of the EU-8. The
                  post-unification Germany to comply with         former Yugoslavia had always been more
                  these rules. The peripheral European            market oriented than other East
                  economies could only comply with them           European economies, and Slovenia was
                  with the help of the combination of             always far above the average income of
                  exemptions and subsidies.                       their former Yugoslav federal state. Their
                                                                  relatively small size and nearness to two
                  The ten new member states of 2004               advanced EU countries means that their
                  signed up to the Economic Monetary              needs for large-scale infrastructure con-
                  Union without hesitation and thus they          struction are less imminent, which is a
                  have to outline their plans on how to           gift to the state budget in comparison to
                  achieve this. Yet, their economic funda-        their north-eastern neighbours.
                  mentals differ from the more advanced
                  market economies of the EU. They are            The Baltic States seem to be closer to
                  still in the phase of catching up, i.e. they    monetary union too, if we compare them
                  need large-scale capital inflows and an         with the Visegrád countries. The picture
                  export-led economic recovery with a             is otherwise similar, but the reasons are
                  higher than EU-average annual GDP               different. These countries left the Soviet
                  growth rate. Due to the so-called               Union in dire economic circumstances.
                  Balassa-Samuelson effect, this is also          Their small size and openness created a
                  accompanied by higher-than-average              need for currency boards or similar mon-
                  rates of inflation. Crudely speaking, if        etary solutions, i.e. the subordination of
                  these countries want to comply with the         wage policies and development consider-
                  Maastricht criteria, they have to give up       ations to monetary stability. This experi-
                  their goals of catching up. In more tech-       ence and capacity proved useful when
                  nical language: they have to subordinate        they faced the Maastricht challenge.
                  real convergence to monetary conver-
                  gence. This is something any government                              Continues on page 20

Continues from page 19                  floating zloty, and the govern-       the Maastricht framework that
                                        ment of Slovakia faces the dilem-     provides the framework for the
Therefore, the Baltics have also        ma of choosing between fulfilling     hardest policy decisions.
been better situated for EMU            electoral promises and maintain-
accession than the Visegrád             ing the 2009 deadline to introduce    Due to the accession treaties and
Group, but not perfectly. As            the euro.                             some economic considerations,
revealed earlier this year in the                                             the adoption of the euro cannot
case of Lithuania, the EU is not        The recent political crisis of        be officially abandoned. Most of
prepared to apply the same flexi-       Hungary cannot exclusively be         the new EU member states,
bility for the EU-8 as they did in      written to the account of the         therefore, need to struggle with
1999 for the Western countries.         euro, but it is not unrelated.        this impossible task in the fore-
They justified the rejection of         Hungarian politics has never man-     seeable future. The choice, how-
Lithuania by questioning the sus-       aged to grasp the reality of the      ever, is not only theirs. It is also
tainability of their stability, which   EMU challenge. During the mid-        up the EU to decide whether to
is nothing but discrimination,          1990s illusions were entertained      lock the Eastern members into
since sustainability was never a        about meeting the criteria by         this unpleasant dilemma, or
criterium among the founding            2000, and then by 2004, the year      rethink the monetary architecture
members of the eurozone.                of EU accession. The first official   of the European Union. The ques-
                                        plan in 2003 promised to intro-       tion is, how many more crises will
The Lithuania decision did not          duce the euro in January 2008.        they need for them to take the
affect the policies of the Visegrád     This was modified in less than one    second option.
states in a positive way. Hungary       year to 2010, and this was also
produced a convergence plan for         abandoned earlier this year when      Andor Laszlo is an economist, associ-
eurozone accession without a            the budget deficit was recalculat-    ate professor (Corvinus University of
deadline, and the new govern-           ed after clarifying the statistical   Budapest), board member at the
ment of the Czech Republic              methodology. Hungary needs            European Bank for Reconstruction and
immediately abandoned the pre-          financial stabilization even with-    Development (the views expressed in
viously held target. Poland is not      out considering the euro, but in a    this article do not reflect the position
even on the map of EMU with her         couple of years it will again be      of EBRD)

                    ANCIENT TIMES                                out the German Reich. Germany’s reichsmark survived two
In the course of mankind’s history there have been numer-        World Wars and devastating inflations. It was transformed
ous attempts to introduce a single currency. Whenever eco-       into the Deutschmark after the Second World War, and was
nomic and political stability have enabled international         finally vanquished only by the introduction of the euro.
trade to expand, a single monetary standard has usually fol-
lowed the expansion of political power. In Europe the first                     THE GOLD STANDARD
single currency was established by the Roman Empire when
local currencies were replaced by Roman coins wherever           The gold standard was introduced in England as early as
the Roman Empire extended its rule.                              1717, but it did not become universal in Europe until the
                                                                 1870’s, when all currencies were fixed to gold, and gold
However, single currency areas persist only as long as polit-    fixed currencies to each other. The result was almost a
ical and economic stability continues, for, when the econo-      complete elimination of currency fluctuations among the
my becomes less stable, the financial system also deterio-       world’s major currencies. Countries could issue paper cur-
rates. In ancient Rome, as in China, economic and political      rency, but only if it was backed by sufficient gold reserves.
instability contributed to the failure of the single currency.   The establishment of the gold standard made it easier for
                                                                 countries to re-introduce paper currency. Thus, countries
                  THE MIDDLE AGES                                began issuing notes which were fully redeemable in gold.
                                                                 The gold standard worked smoothly until August 1914,
After the Roman Empire divided into the multiparous west-        when World War I forced countries to suspend currency -
ern half and the stable Byzantine empire in the east,            conversion.
Western Europe went without a common currency of any
kind for centuries. This was not the case in the Byzantine               THE BRETTON WOODS SYSTEM
Empire, where the gold tremessis (also known as the nomis-
ma or solidus) maintained its value for one thousand years,      Despite numerous attempts to stabilize the international
until the fall of Byzantium in the fifteenth century. The        financial system between the two World Wars, any success
Byzantine solidus acted as the primary currency for inter-       was only temporary. Without political and economic stabil-
national trade throughout this period.                           ity, attempts at introducing a single currency were doomed
                                                                 to failure.
Western Europe lacked the resources to issue gold coins
until the issuance of the Florentine Florin and the Genoese      After World War II, an agreement at Bretton Woods, in the
Genovino in 1252. By coincidence, the introduction of the        USA, established the dollar standard to replace the gold
single currency in Europe in 2002 occurred on the 750th          standard. The value of the dollar was fixed to gold at $35
anniversary of this re-introduction of gold coins in Western     to the ounce, and the world’s currencies were fixed to the
Europe.                                                          dollar. Exchange rates were fixed in the short run, but flex-
                                                                 ible in the long run.
                                                                 In the 1950s, most currencies were not freely convertible,
The first attempts to create an international currency for       and the low level of international capital flows and inter-
Europe, in modern times, occurred in France in the 1800’s,       national trade made it relatively easy to manage the
when Napoleon’s finance minister, Francois Nicholas              Bretton Woods system.
Mollien, wanted to supplement the uniform system of
measures with a uniform currency. However, Napoleon’s            As it became easier to send money between countries,
régime fell, and it was not until 1865, with the inception of    trade increased, countries began pursuing different mone-
the Latin Monetary Union, that the first international cur-      tary policies, and the Bretton Woods system began to break
rency was established in modern Europe.                          under the pressure. By the 1970’s, demands for increased
                                                                 government spending, combined with the desire of govern-
Member-countries (originally France, Belgium, Switzerland        ments to minimize economic downturns through Keynesian
and Italy) agreed to mint coins to a single standard and to      fiscal policy - and through the subordination of monetary,
limit the minting of their coins. Coins that conformed to        to fiscal, policy - produced inflationary pressures through-
this standard would be accepted as legal tender by govern-       out the world. Under the increasing strain, the Bretton
ment offices in any of the member countries. At its peak,        Woods system collapsed in 1971, following the United
eighteen countries adopted the Gold franc as their legal         States’ suspension of convertibility from dollars to gold.
tender (or peg). Member countries voluntarily limited their
money supply by adopting a rule which forbade them to             THE EAST CARIBBEAN CURRENCY UNION
mint more than 6 franc coins per head-of-population. The                     AND THE CFA
Latin Monetary Union continued until the outbreak of World
War I, in 1914.                                                  Only two multinational currency unions have worked since
                                                                 World War II. These were the East Caribbean Currency
                  THE ZOLLVEREIN                                 Union (ECCU) and the Communauté Financière Africaine
                                                                 (CFA) which consisted of the former colonies of France in
The German Zollverein (customs union) was established in         Central and West Africa. The latter proved to be by far the
1834, but was transformed into a currency union only in          most successful. It has operated a currency union among
1875, when Bismark of Prussia, after uniting the German          its members, ever since the former French colonies gained
states, established the Reichsbank and forced the Germans        their independence in the early 1960’s, right up to the pres-
to accept a new currency as the only legal tender through-       ent day..

                THE EURO TODAY
                Thirteen years after the narrow victo-       tic crisis, Jacques Chirac proposes
                ry for ratification of the Maastricht        reforming the monetary union and forc-
                Treaty, the middle and working class-        ing the European Central Bank to work to
BY CHRISTOPHE   es, who gave the ‘no’ campaign its vic-      put the economy back on an even keel.
 BEAUDOUIN      tory, appear to have wanted to gain          European Union imports will be subject
                back the upper hand on 29 May 2005.          to a 10% tax to finance employment pro-
                Suffering from an erosion on three           grammes.’ This scenario from the realms
                fronts – an erosion of their standard of     of political fiction was envisaged by Der
                living, an erosion of national identity,     Spiegel on 17 February 1997 and ended
                with all that the nation holds together,     with a European crisis summit, the rein-
                and an erosion of sovereignty, i.e.          troduction of the franc and a serious
                democratic control over public choices       political crisis in Europe, requiring
                – it was those French people in partic-      Germany to ‘face up to its responsibili-
                ular who punished the current                ties’.
                European process (‘model’ no longer
                sounds appropriate), which they saw          Sold on the pretext that it would help
                as increasingly dubious and which cul-       maintain peace, hasn’t European inte-
                minated in the Constitution. Today,          gration actually increased mistrust of the
                61% of French people say they miss the       Franco-German axis, especially since
                franc, whilst in Germany, in Italy and       1990, the single currency being both the
                in the Netherlands the matter is no          culmination and the symbol of the inte-
                longer taboo. Since the euro is without      gration process? The euro, wrote Jean-
                doubt the most tangible symbol of this       Pierre Chevènement, ‘is a decisive step
                threefold erosion, which led to the          in France’s political integration into a
                first ‘no’ votes in France and the           small Carolingian Europe which Germany
                Netherlands, it is only right and prop-      would dominate through the inevitable
                er that debate on the future of the          effect of gravity’. But it was former
                euro has been ongoing since 2005. The        German Chancellor Helmut Kohl himself
                federalists who are planning to ‘save’       who gave the best summary: ‘Our reuni-
                their plan to create a constitution for      fication will be completed only when
                the European Union, a plan which has         Europe too is one’. When all was said and
                been rejected by the people, by push-        done, the single currency was to be the
                ing ratification through parliament          instrument of this unification. In fact,
                after 2007, now explain, in the face of      the euro is not the product of any eco-
                the failure of the euro, that an eco-        nomic rationale, but a purely ideological
                nomic government is needed to resolve        creation, a political tool to force the
                all the problems. As usual, they             states to merge into a federal entity, as
                believe that Europe is the answer to         we will see.
                the problems that it creates. In our
                view, as advocates of a Europe of the        AN ISLAND OF STAGNATION IN
                nations, the euro must in fact be               AN OCEAN OF GROWTH
                reformed. Indeed, we should not rule
                out the possibility of getting rid of it
                altogether.                                  With a German economy threatened by
                         _____________________               recession, even if France is managing to
                                                             extricate itself slightly better, the euro
                ‘2003: a fall in Wall Street prices causes   zone has for some time been an ‘island
                a similar drop on European stock mar-        of stagnation in an ocean of growth and
                kets, followed by a banking crisis. (...)    employment’ in the words of the econo-
                The Stability Pact adopted in Dublin in      mist Nicolas Baverez. There has been
                1996 forces the countries in the euro        unprecedented economic expansion
                zone to make massive cuts to their pub-      throughout the world since 1976, with
                lic spending just when the economy is        average growth of 5%.
                flagging. Protests are strongest in
                France; violent demonstrations take
                place in Paris. In response to the domes-                         Continues on page 23

Continues from page 22                                       2005 that he was in favour of having both the euro and
                                                             the lira in circulation, and the Minister for Reform,
While Europe is lagging behind the global economy, it is     Roberto Calderoni, envisaged the creation of a new
the non-member countries of the European Union –             Italian currency linked to the dollar.
Iceland, Norway and Switzerland – that are avoiding this
pessimistic situation. Furthermore, within the European      In Germany, too, the dismantling of the euro is no longer
Union it is the countries that have kept hold of their       a taboo issue. On 2 June 2005 the magazine Stern
national currencies that are still coming out best. The      devoted a special report to the subject, with a German
United Kingdom, Denmark and Sweden are seeing growth         eagle choking on a euro coin on the front page. It asked
well above the European average. The euro zone, on the       ‘Has the euro gone down the wrong way?’ before
other hand, in the period of 2000-2005 achieved only         answering plainly: ‘The euro is destroying us’. It
1,8% GDP growth rate, whilst the three non-euroland          revealed the content of an informal meeting in Berlin
countries reached 2,6% as an average. This debate on         between the President of the Bundesbank, Axel Weber,
the future of the euro therefore needs to be resumed,        the then Minister for Finance, Hans Eichel, and a num-
without any taboos and without dogmatism.                    ber of economists. One of those present, Joachim Fels,
                                                             an economist from Morgan Stanley, felt that economic
In Greek mythology, Procrustes (in ancient Greek             differences in the euro zone could ‘lead to the euro
‘Prokroustes’, literally ‘he who stretches’) was a robber    being dismantled within a few years’. The then Minister
whose speciality was to capture travellers and torture       for the Economy, Wolfang Clement, himself blamed the
them by stretching them on an iron bed, where they had       euro for his country’s economic stagnation, declaring
to fit exactly; if they were too tall he amputated the       that Germany ‘is sacrificing a considerable part of its
excess limbs; if they were too short, they would be          growth on the altar of monetary union’ because of the
stretched until they reached the required size, hence his    interest rate levels imposed by the European Central
name. Procrustes was killed by Theseus, who subjected        Bank.
him to the same fate. For Europe the lesson is clear: a
single currency for different peoples puts them in           An internal German Ministry of Finance memo entitled
Procrustes’ bed and places them collectively in a less-      ‘euro zone: growing concerns over increasing disparities
than-optimum position since their economies have dif-        in inflation and growth’ considers that ‘the gulf is like-
ferent needs.                                                ly to widen further and there is consequently an
                                                             increased risk of an adjustment crisis’. Another memo
A currency represents a people and a nation, and a cur-      states that when Germany lost the deutschmark, it also
rency cannot exist without a people, without a state or      lost the competitive advantage provided by the lowest
without a nation. According to François Asselineau: ‘We      interest rates in Europe, for the benefit of countries like
are in this situation with the euro, which requires the      Greece, Ireland, Portugal or Spain. By allowing its neigh-
French to accept, until the end of time, the same wage       bours to obtain the same interest rate as itself, Germany
discipline as Germans and Finns, the same social securi-     is said to have lost 1.4 percentage points in growth in
ty cover as Greeks and Italians, the same corporate tax      2004.
rates as Luxembourgers, the same inflation as
Austrians’.                                                  According to a Forsa survey, 56% of Germans would like
                                                             to see the return of the mark, 48% believe that the euro
Georges Berthu put it succinctly when he said: ‘the          has contributed to the poor economic situation in
important thing about having a national currency is not      Germany and 90% think that it has led to lasting price
being able to manipulate it (…); it is being able to allow   increases.
it to develop without constraints in parallel with the
growth of the country. If we want a prosperous econo-        A legal argument is reported to have been floated among
my and a peaceful society, the national currency must        German decision-makers, according to which it would be
be linked to the life of the country and not to the life     possible to exit the euro, by agreement, if the founda-
of neighbouring countries.’                                  tions of EMU were no longer respected. That argument is
                                                             taken from a document drawn up by Bundestag staff at
        THE DOUBLE ‘NO’ VOTE HAS                             the request of the EU-critical MP Peter Gauweiler (CSU).
            UNTOUCHABLE EURO                                         THE EURO IS ECONOMICALLY
Now that European discontent can be expressed freely
at last, it is in two countries, Germany and Italy, where    In a column published by Le Monde on 14 January
the Constitution was ratified in parliament by the ruling    2004, two economic experts (Anthony Gribe and
elites, that criticism about the impact of adopting the      Laurent Jacque) were already asking ‘Are the days of
single currency has been most fierce and the dismantling     the euro numbered?’ showing why the single currency
of the euro has been seriously raised.                       had not checked the European economic malaise and
                                                             questioning whether it was to blame for the current
While Italy is under threat of an excessive deficit proce-   economic difficulties in the euro zone.
dure by the Commission in Brussels, the former Italian
Minister for Social Affairs, Roberto Maroni, declared in                                          Continues on page 24

Continues from page 23                                     The euro has also necessitated a single monetary pol-
                                                           icy managed by the European Central Bank, taking
A comparison of performance in the euro zone and the       away from each country two economic policy tools:
non-euro zone is conclusive: in the former, economic       an independent monetary policy and exchange rate
‘growth has been weak, unemployment has continued          flexibility; the third tool, budget policy, is con-
to creep up and the budget deficits of the two largest     strained by the Stability Pact.
economies in the zone are exceeding the 3% GDP ceil-
ing set by the Stability Pact’; in the latter (United      Because of the differences between the EU countries,
Kingdom, Sweden and Denmark), we see ‘markedly             the reduced autonomy of their economic policies can
lower rates of unemployment, higher growth rates           be dramatic if one of those countries suffers a partic-
and very low budget deficits (where they do not have       ular crisis which does not affect the rest of the euro
a budget surplus)’.                                        zone. In the view of the experts ‘the combination of
                                                           centralised monetary policy and decentralised budg-
The politically-motivated launch of the euro in 1999       et policy leads to inflation differentials between the
was not based on the economic theory of the optimum        EU countries which result in disparities in the pur-
currency area (OCA). Developed by the American             chasing power of the euro in the Member States’.
Robert Mundell and elaborated by Milton Friedman in
the United States and Jean-Jacques Rosa in France,         In a ‘national’ exchange system, this effect would be
the OCA theory defines such areas as a group of coun-      easily corrected through monetary policy and a ‘com-
tries or regions whose economies are closely integrat-     petitive’ appreciation or depreciation of the currency.
ed, as regards both trade in goods and services and        However, ‘the straitjacket of the euro has killed the
mobility of factors of production. The United States –     exchange rate policy tool and frozen monetary poli-
which is a nation – is an example of a successful OCA.     cy’. Because of this inability to respond flexibly to
The European Union is not an OCA: intra-EU trade rep-      inflation, the purchasing power of the euro in several
resents around 15% of the area’s GDP, which is very        countries is rapidly being eroded compared with the
low compared with the United States; labour mobility       German and euro-zone averages.
in Europe is very limited compared with the United
States (where 17% of the working population moves          We are reminded of the sad tale of the Argentine
each year) and, moreover, is low even within the indi-     peso, locked throughout the 1990s in a one-to-one
vidual States. If the EU were an OCA, the economy of       peg with the US dollar – creating a de facto monetary
a country encountering difficulties would automati-        union with the United States. ‘In so doing Argentina
cally be adjusted because of the mobility of its labour    abdicated its monetary policy independence to the
force in the rest of the area, and also because of         United States and gave up its exchange rate policy
wage and price flexibility, as well as budget transfers    without gaining, in return, fiscal transfers from the
from Brussels, which the Community budget does not         United States and without being able to bring labour
allow in the case of an ‘asymmetric shock’ (2.5% of        mobility into play. The peso became grossly overval-
public spending compared with 63% of the US federal        ued (by approximately 30% in purchasing power pari-
budget). None of these three conditions has actually       ty terms) while the Argentine economy wilted, unem-
ever been met. And with good reason: the euro zone         ployment skyrocketed, the peso/dollar parity col-
is not a nation, there is no pre-existing political fed-   lapsed and the exchange rate plunged.’
eration or a single – or merged – people, common lan-
guage or imperial conquest.                                                                  Continues on page 25

Continues from page 24                                       of the Council of Ministers of Finance of the euro zone
                                                             (‘Eurogroup’) should be published. In this minimum
A deepening recession (and Germany is not far off)           reform that we are proposing, the European Council
with structural unemployment reaching 11-13% will            of Ministers should exercise all its responsibilities vis-
exert unbearable pressure on the euro-zone coun-             à-vis the Central Bank and set for it, with a view to
tries. Politicians would then find ‘the temptation of        controlling prices, an objective of growth and
an independent currency float’ hard to resist.               employment, under the watchful eye of the national
                                                             parliaments (which would obviously require institu-
Whilst ten eastern European countries joining en             tional reform).
masse ‘will only weaken an already rickety
“equipage”, the economists conclude that ‘however            However, we should not rule out the possibility of
traumatic reinstating national currencies may be,            exiting the euro. States should be materially capable,
some – not necessarily all – countries, particularly the     in the event of a serious crisis affecting the euro
smaller ones, may decide to abandon the euro’.               zone, to opt out and quickly return to their national
                                                             currency, while the euro would remain the common
It is necessary at this stage to take a historical look at   currency. For a few months, the economist Jacques
the fate of plurinational currencies in the past. For        Sapir has been developing his vision of an interim
example, the newly independent States emerging               solution, which would consist in defining concentric
after the break-up of the Soviet Union were quick to         zones where the euro could remain the single curren-
abandon the rouble, which was established as the             cy, but over a much smaller area than at present: this
‘single currency’ of the new Commonwealth of                 is the first circle. In a second circle of countries,
Independent States, to adopt their own national cur-         where structural differences make the single curren-
rency, as an instrument of their independence, a sym-        cy too expensive, the euro would be the common cur-
bol of their restored dignity and an essential tool for      rency, in parallel with the national currency which is
national economic policy. The same pressing phenom-          pegged to the euro in order to combat financial spec-
enon occurred with the break-up of Pakistan, the for-        ulation and to guarantee the credibility of monetary
mer eastern part gaining independence in 1971 under          policy for the nations in the zone. In monetary policy
the name Bangladesh and adopting a new currency,             terms, it would be necessary last of all to allow a
the taka. It could also be seen when Czechoslovakia          ‘weak euro’ policy to give a boost to our exporting
split, with the appearance of the Czech crown and the        enterprises and to support capital flows that promote
Slovak koruna. The reason given at the time was that         material investment, rather than speculative opera-
the Czechs ‘had had enough of paying for the                 tions.
Slovaks’. The scenario was the same following the
break-up of the Yugoslav Federation.                         In conclusion, we should consider the legal aspects of
                                                             a withdrawal from the single monetary policy, draw-
                                                             ing attention to the following legal argument. To set
   HOW CAN WE EXIT THE EURO, IF IT                           up the current Economic and Monetary Union, the
        PROVES NECESSARY?                                    governments of the euro-zone States made use of
                                                             ‘extra-Treaty’ commitments in an act – a 1997
                                                             European Council resolution – which was not subject
A growing number of economists now recognise the             to any review or national constitutional ratification.
limitations of the euro, which has become a counter-         In the face of Germany’s desire to firm up economic
balance for international monetary fluctuations since,       policy coordination procedures and to combat public
unlike the US and Asian central banks, the ECB, being        deficits without having to revise the Maastricht
paralysed by the differences between the euro-zone           Treaty, the Amsterdam European Council adopted a
economies, has given up any pro-active management            resolution which was subsequently supplemented by
of the currency. With the euro still there, efforts must     two Council regulations (No 1466/97 and No 147/97
be made at least to ensure that the people suffer as         of 7 July 1997). That resolution goes further than is
little as possible, and that they gain some benefits. In     permitted, in France for example, by Article 88(2) of
our view, the most urgent task is to make the Stability      the Constitution, as amended by the constitutional
Pact more flexible, increasing the States’ room for          revision of 25 June 1992 prior to the ratification of
budgetary manoeuvre so that they can adapt their             the Maastricht Treaty. To summarise, EMU currently
policy to their domestic economic situations. Each           has very questionable legal bases which were estab-
State should be able to organise its own affairs, with       lished in contravention of the requirements laid down
only flexible coordination at European level.                in the Treaty on European Union (Article 118 EC) and
                                                             of the constitutional authorisations granted by the
To make the system more understandable to citizens,          States.
prices must continue to be displayed in shops in both
euros and national currency, euro notes should be            Christophe Beaudouin, a French lawyer, works for the
printed with their exchange value in the national cur-       IND/DEM Group as Staff coordinator for the EP Committee
rency and the minutes of meetings of governors and           on Constitutional Affairs

               A DOUBLE RIP-OFF
               PRIVATE THINK-TANKS.
               The world is governed by very different          severed portion of the living body - and to
               personages from what is imagined by those        apply such a trade-off to society as a whole
               who are not behind the scenes.                   betrays the most extraordinarily callous
               Benjamin Disraeli (“Coningsby” 1844)             and insulting folly.

               For some years now, the protagonists of the      Security comes from consensus, vigilance
               “war on terror” have been proposing an           and strength within the population. It aris-
               exchange: addressing the public, they            es from the common will to stand together
               have put the question, “how much free-           and, if necessary, fight a common enemy
               dom should we give up for our security?”,        under the leadership of a legitimate, pop-
               and most commentators appear to have             ular government. It does not come about
               accepted, and to have considered, this           from treating society like some monstrous,
               proposal only at its face-value, but how         enormous prison!
               valid is this proposed exchange?
                                                                The proposed exchange is thus not only a
               Benjamin Franklin averred, in the                fraud but the product of a repellent,
               Historical Review of Pennsylvania (1759)         oppressive mind-set; and yet it escapes
               “They that can give up essential liberty to      condemnation in political circles and the
               obtain a little temporary safety deserve         media. How can this be?
               neither liberty nor safety,” but how likely is
               it that surrendering one’s freedom increas-      Somewhat more recently - the first propo-
               es one’s security anyway, or at all? On the      sition having passed unchallenged - a new
               contrary - given that greater freedom            version of this fraudulent offer was put for-
               means more options in life - is it not more      ward. Now, the simplistic trade-off of the
               likely that less freedom will actually mean      penal institution - which is an involuntary
               less security? Does not multiplicity of          exchange (as far as the prisoners are con-
               choice imply access to more modes of             cerned) and which is made primarily in
               security and more routes of escape from          order to safeguard the security of the
               danger? Is it not multiplicity of choice,        guardians, not that of the prisoners - is
               which produces democracy, social consen-         expressed as a deal, in which the public is
               sus, government-by-consent and, thereby,         asked to surrender privacy for security.
               security, justice, peace and prosperity?         Both propositions refer to internal arms
                                                                (security and surveillance) of the state’s
               I propose that the more such multiplicity is     coercive power; but, with privacy as the
               curtailed, the fewer opportunities for com-      focus, the very root of freedom - the sov-
               munication arise, the more mutual incom-         ereign integrity of the individual - was
               prehension and tyrannical coercion grow,         placed under attack, as an EU-campaign
               and the further all social goods go into         got under way, at a conference in Brussels
               decline. Freedom-versus-security is the          on 16th and 17th May 2006, to introduce
               simplistic trade-off of the gaol, which is       “radio-frequency identification” (RFID) -
               not a complete society, but only society’s
               specialised, penal fraction - no more capa-
               ble of independent existence than some                                  Continues on page 23

                              A DOUBLE RIP-OFF
Continues from page 22                                      The shadowing of the EU, by NAFTA, is no mere coinci-
                                                            dence. It was the American Association for a United
in the form of concealed micro-chips, or tags - into        Europe - an offshoot of the CFR - which funded and
identity-documents, consumer-products and the               directed the so-called “fathers of the EU”, Monet and
human body itself. Remarkably, similar campaigns are        Spinelli et al., throughout two decades after the war, in
going on, simultaneously, across the Atlantic and in        their endeavours to create a supra-national, European
Australia.                                                  élite (see “Britain Held Hostage”, Lindsay Jenkins)
                                                            Such was its influence that, as papers discovered in
Once again, concerned commentators wondered about           Georgetown Public Library attest, millions of dollars
the possible misuse of technologies and legislative         were filtered, through the CIA, to the “Yes” campaign,
powers, but no-one challenged the basic assumption          in the British “Common Market” referendum of 1972
that having less privacy can somehow make you more          (ibid. Lindsay Jenkins)
                                                            The families, and corporations, of the CFR control most
No-one seemed to notice, either, that the prevailing        of the world’s wealth, and, through the CFR, they con-
process of eroding frontiers - both within Europe, and      trol most of the world’s politics as well. Every devel-
between Europe and countries, which have every rea-         oped country now has an “Institute of International
son to resent western policies - and the mass-migra-        Affairs”, which is closely linked to the CFR and to that
tion, which has resulted from this, betrays as blatantly    country’s supposedly democratic government. CFR-
negligent an attitude among policy-makers, towards          graduates pass to and fro, between government and
security, as could be imagined. The question might,         corporate posts, via the so-called “revolving door”
therefore, be re-phrased as, “how much freedom (or          between politics and commerce.
privacy) are you prepared to trade for a security, which
the authorities are squandering as fast as they can?”       Spokesmen from the CFR, or its satellite in London - the
                                                            Royal Institute of International Affairs (RIIA or Chatham
In 2002, British officials in Central Europe, and in East   House) - frequently appear on current affairs pro-
Africa, were exposed in the act of soliciting for           grammes as “independent experts”, but other agents,
unscreened immigrants to Britain, just as Britons were      such as Ed Balls - at HM Treasury for many years - Henry
being asked to take part in an essay competition, fund-     Kissinger or Zbigniew Brzhinski, and a dozen-or-so CFR-
ed by the Shell-Oil Corporation and presented by “The       graduates in the current Bush-administration - have
Economist”, to answer the question, “how much of our        been, or are, senior officials in their own right.
freedom should we give up for security?”
                                                            The infiltration of government is only a supplementary
This May, a bill was introduced to the American Senate,     activity, however - a helping hand in the guidance of
proposing an amnesty for the millions of Central- and       day-to-day policy. More crucial is the degree to which
South-American immigrants, who, for decades, have           funding for political parties is steered to produce the
been entering the USA illegally across the flagrantly       kind of leadership and policies, which the CFR and its
neglected Mexican border. A few weeks before, an            (too numerous to mention) allied organisations, consid-
amnesty for millions of African immigrants was              er desirable. In order to do this, senior CFR-directors
declared in Spain. In both cases, a token gesture was       and spokesmen have to meet, and discuss global policy
made towards strengthening the frontier-guard, but          with, heads of state, and of government, leading aca-
there is no disguising the authorities’ intent. By their    demics and the owners and editors of the world’s major
own admission - and on the spurious grounds that mass-      media-networks, in an informal and, above all, secret
immigration is considered necessary to correct a            setting - under the so-called “Chatham House rules”.
“demographic deficit”, or age-imbalance, in the popu-       These are the little known, annual “Bilderberg
lation - what is happening is clearly what they want;       Meetings”, where, among other business, the rising
but are they creating insecurity in order to provide an     generation of party-leaders is vetted for suitability, so
excuse for limiting freedom and privacy?                    that, whichever of them manages to persuade the elec-
                                                            torate to vote for him, the CFR’s will is always done.
Last April, the Council on Foreign Relations (CFR) - a
private “think-tank” - , financed by family fortunes and    Despite the presence of representatives of many well-
several hundreds of the world’s largest corporations -      known newspapers-of-record at these meetings, no
issued a policy-paper calling for the North American        reports of them ever appear in the press; and yet, with-
Free Trade Area (NAFTA) to be “deepened” - through          out understanding the role of the CFR and Bilderberg,
the institution of further, supra-national agencies - and   and their influence on the governments of all developed
for the Mexican and Canadian borders to be opened.          countries, and on the supra-national institutions, in
Thus, with the introduction of President Bush’s             which these countries are increasingly enmeshed, cur-
Amnesty Bill, the NAFTA - a sort of embryonic European      rent affairs and recent history are inexplicable.
Union - creeps along in the footsteps of the EU, which,
in the preamble to its haughty Constitutional Treaty,       Andrew Stephen Reed - writer and translator, active in pol-
declared its intent “to be the model for a new world        itics since 1985. Joined UK Independence Party 1998. Now
order”.                                                     an adviser to UKIP-MEP's in Brussels and Strasbourg.

                 From 29 June until 2 July 2006 the presi-     European Union's Supreme audit bodies,
                 dents – also called 'speakers' – of the       i.e. the national courts of auditors, will
                 national parliaments in the European          discuss it at their next common meeting in
                 Union met in the Danish parliament in         Warsaw, in December. Countries are also
                 Copenhagen. One of the topics they dis-       expected to assume responsibility for the
BY RIES BAETEN   cussed was how to organise subsidiarity       accounting and use of European funds.
                 in the proposed European legislation.         But according to the Treaty of Nice, still in
                 ‘Subsidiarity’ must be the shibboleth         force for some unpredictable time, the
                 word par excellence of the EU institu-        responsibility lies with the Commission
                 tions. This EU jargon is otherwise mostly     and no one else. It is not enough to have
                 used among theologians who study              an ‘armchair Commission’ only interven-
                 Thomas Aquinas – the saint who coined         ing when member states cannot cope
                 the term seven centuries before               themselves. It is hard to imagine sub-
                 Commission president Jacques Delors           sidiarity applied to the sector of the man-
                 would 'popularise' it, at least among         agement of EU funds.
                 administrators and legislators, in a
                 speech at the European College of Bruges      It never hurts to be vigilant. The EU may
                 in 19893.                                     seek to intervene in those areas in which
                 In the EU sense of the word, ‘subsidiari-     national governments are supposedly not
                 ty’ means that decisions are to be taken      efficient by themselves. Ways of doing so
                 at the lowest level, i.e. by an administra-   are soft law, in the field of employment,
                 tive body as close to the citizens as pos-    education and soon, if we are not careful,
                 sible.                                        healthcare, too. Big Brother kindly offers
                 Finnish minister of foreign affairs Erkki     a helping hand, but in reality it will look
                 Tuomioja complained in a text of 10           for weaknesses in member states and
                 August that sensitive Council documents       make use of any perceived lack of organi-
                 which are meant for member states             sation in an attempt to shift more power
                 ended up in Washington, Tel Aviv and          to Brussels.
                 Moscow within an hour. He called this
                 'false transparency', adding an abject        In May this year the Commission celebrat-
                 adjective to another buzzword. Could          ed Schuman Day in an appropriate way
                 there also be a thing called 'false sub-      and agreed 'to transmit all new proposals
                 sidiarity'?                                   and consultation papers to national parlia-
                                                               ments, inviting them to react so as to
                 Taking decisions close to the citizens        improve the process of policy formula-
                 sounds appealing. But it could be used by     tions' 4.
                 the European Commission to get rid of an
                 important responsibility enshrined in the     As of 1 September 2006 the European
                 Treaty article about the implementation       Commission forwards proposals for EU leg-
                 of the budget, Article nr. 274.               islation to 37 parliaments in 25 member
                                                               states without delay. Twelve EU member
                          SUBSIDIARITY ON                      states have bi-cameral parliaments; thir-
                           BUDGET LEVEL                        teen have only one. It is hard to under-
                                                               stand why parliaments have put up with
                 The National Audit Office (NAO) of the        the situation that existed until very
                 United Kingdom is headed by comptroller       recently for so long. The opinion that
                 and auditor general, Sir John Bourn. His      “Brussels is a part of interior affairs” is
                 office is at the origin of a groundbreaking   not shared widely – not even in the
                 idea. Instead of today's practice, the NAO    Netherlands, where this slogan was intro-
                 advocates a system where the European         duced several years ago. Comparably, the
                 Commission no longer sends EU money to        Austrians baptised a conference in April
                 thousands of different recipients. In the     with the slogan, “Europe starts at home”.
                 future, each member state would have
                 only one point of entry and exit for EU       The communication quoted above
                 money.                                        explains that the immediate disclosure is
                                                               not in fact a result of a pressing demand
                 Vice-president    of    the    European       from member states.
                 Commission Siim Kallas, responsible for
                 administration and audit, said he would
                 study this 'interesting' idea. And the                               Continues on page 29

Continues from page 28                                     sudden proposal that had been kept in the dark. One
                                                           journalist in a German newspaper spoke of the belat-
 Although the Council summit of June praised the           ed initiative as a seed for a political revolution. It is
Commission's innovative initiative, and the Laeken         probably true that one effect of this prompt informa-
declaration of December 2001 had called for a clear,       tion to national parliaments will be fewer Court cases
open, effective and democratically controlled              filed by the Commission against member states for
Community approach, it was the Commission – with its       non-compliance with EU legislation.
Plan D of November 2005 – that was at the origin of
the action. Indeed, Mr. Kallas' colleague, Vice            National parliaments will check the incoming mail
President Margot Wallström could not conceal her sur-      from the Commission in different ways. The bi-camer-
prise over how the Council welcomed the idea in its        al Dutch legislature recently formed a joint commit-
June conclusions. Here is a quote from her speech in       tee to deal specifically with the issue of subsidiarity
Helsinki at a meeting of presidents of EU committees       tests, composed of members of the existing commit-
of national parliaments in September: “The                 tees. The Belgians have a joint committee on EU
Commission General Secretariat has opened a new            affairs, with ten members of both chambers plus ten
mailbox, especially dedicated to receive your com-         members of the European Parliament. The twenty
ments. You will automatically get a receipt of deliv-      members of the Belgian Senate and the Chambre des
ery when submitting something to this mailbox. And         Députés are called 'europromotors'. Their task is to
needless to say, you are free to send your opinions in     make sure that the Commission proposals are noticed
whatever official EU language you choose. As I said,       by their colleagues of relevant committees, e.g. the
there is no formal six-weeks rule, as in the               Enviroment Committee, or the Employment
Constitution. There is no deadline or "best before         Committee. Every committee has a European item on
date" for your opinions. But it, of course, goes with-     its agenda at least every month. Governments could
out saying that the sooner we get your opinions the        fear that at some point parliaments may want to take
better; the more time we have to take them into            back powers that they themselves had wanted to
account."                                                  hand over to Brussels.
                                                           Back to the annual meeting of chairs, one of the sev-
By simply including contact persons in the 37 parlia-      eral forums where EU scrutiny is discussed. Speakers
ments in an e-mail list, the Commission hopes to           of national parliaments meet once a year and their
involve national parliaments to help make European         politically neutral chiefs of staff – secretaries gener-
policies more attuned to diverse circumstances and         al – prepare the meetings sometimes months in
more effectively implemented. It realises that some-       advance. Next       year's meeting will be held in
thing will have to be done with the feedback. This         Bratislava. One of the topics on the agenda can be
means a new commitment and an expanded portfolio           expected to be the evaluation of the 'early warning'
for several officials – three, at the time of publica-     system. We did not need to have a European
tion. The hugeness of the extra work should neither        Constitution to have this system put in place. With
be under- nor overestimated. Whereas it is much too        the implementation of other positive elements in the
early for a complete evaluation of this system, case       draft text the need for a wholesale constitution
studies and biannual reports ensure a constant flow of     imposed on all 450 million EU citizens, including its
information on the possible success of the project.        much more controversial articles, will become as
                                                           unlikely as it is unnecessary.
Jens-Peter Bonde MEP asked the Commission recently
whether the national parliaments will get three            1
months' time to check the proposed legislation for         2 Com(2006)211 of 10 May 2006.
subsidiarity and proportionality. The Commission's
answer was that, as is the case with the European
Parliament, all parliaments will not have three            Ries Baeten is a half Dutch, half Belgian linguist and
months but six weeks of early warning, although this       project manager. Since 2000 he has held jobs as
is not a real deadline at all. Exceptions aside, it will   Parliamentary assistant for four MEPs in four different
no longer be possible for members of national parlia-      political groups. In June 2004 he was the nr. 3 candidate
ments to react in astonishment or shock because of a       for the whistleblower list Europa Transparant.

                                                                                 CHART 1
                                                                      Overall perception of the euro
                    percentage the total responendents

                  Percentage ofof the total respondents

                                                          50                                                       tageous
                                                          45                                                overall
                                                          40                                                Disadvantageous
                                                          35                                                overall




            It is evident from the articles in this edi-                                 vantageous increased from below 30% to
            tion of EUWatch that experts generally                                       close to 40%. The most enthusiastic
            believe that as much as the euro might                                       response came from Luxembourg and
            have been a success on the microeco-                                         Ireland, where some 70 to 80 percent
            nomic level, it is more of an obstacle for                                   believe that overall the euro is advanta-
            the harmonious development of the                                            geous. At the other end of the spectrum
            European Union. Since the introduction                                       we find Greece and the Netherlands,
            of the euro in 2002, the Eurobarometer                                       where the majorities believe the euro is
            (the polling agency of the European                                          disadvantageous.
            Commission) has conducted regular polls
            aimed at measuring the microeconomic                                         Negative perception of the euro is main-
            perception of the common currency. The                                       ly related to price increases, while posi-
            Eurobarometer polls justify the opinion                                      tive attitudes are attributed to the facil-
            that the euro is a microeconomic suc-                                        itation of travelling abroad, easier inter-
            cess, with the majority of citizens polled                                   national price comparisons and the
            (some 12 thousand across the 12 member                                       enhancement of European self-esteem in
            states of the eurozone) believing that                                       having the euro to somewhat look like a
            overall the euro is advantageous for                                         world currency. The deteriorating ten-
            them. However, interestingly enough,                                         dency of the approval rate probably
            the satisfaction with the euro has been                                      comes from the gradual recognition of
            continuously decreasing since its date of                                    the overall negative macroeconomic
            introduction. As can be seen from Chart                                      impact, while the original high approval
            1, in 2002 close to 60% of the respon-                                       rate was a result of the microeconomic
            dents said they found the euro advanta-                                      advantages that the euro provides for the
            geous overall. Four year later this ratio                                    eurozone's citizens.
            decreased to close to 50%, while the
            ratio of those who see the euro as disad-                                                         Continues on page 27

                                                 CHART 2

                     The ratio of those who are or rather hapy happy
                    The ratio of those who are veryvery or rather that the
                    that the euro could replace their national currency
                          euro could replace their national currency





                        SI    HU       SK       PL        MT     CY       CZ       LT       EE       LV

Continues from page 28                                    positively, with a majority of 65-70 percent opposing
                                                          (chart 2).
In the new member states the perception of the euro
has tended to be the opposite of that in the Western      Meanwhile, it is clear that more citizens are inclined
part of the union. Within two years, from 2004 to         to believe that the euro will increase inflation, rather
2006, the ratio of those who think that the introduc-     than help maintain price stability in their country. In
tion of the euro will have a positive impact grew from    this respect Hungarians are the most positive towards
40% to 46%, while the opposing side decreased from        the euro: only one-fourth of the respondents said that
46% to 37%. In 2006, about half (48%) of the respon-      it would increase inflation. Finally, the belief that
dents in the new member states say that they are          the euro will strengthen the EU’s place in the world is
happy to see the euro replace their national currency.    mostly to be found among citizens of the new mem-
The happiest are the Slovenians, Hungarians and the       ber states.
Slovaks, with 54-64 percent expressing a positive atti-
tude towards the euro, while the most sceptical are       Source: Flash Eurobarometer 175, November 2005
the Baltic States, where only around 30% see the euro             Flash Eurobarometer 183, June 2006
Independence/Democracy Group
European Parliament, Rue Wiertz, 60 - ATR 7K 082 - 1047 Brussels, Belgium

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