How leaving the Euro-zone helps nobody

The common currency put an halt to abusive monetary practices

Even when the prospects of the Euro might look gloomy right now let us not forget that the common monetary policy removed the power of politicians to print money arbitrarily and proceed democratically illegitimate policies.

When the European press covers either the mess of debt that European financial institutions find themselves in, or the mess of debt that European governments find themselves in, they tend to link it to the European currency being in danger.

And the press is not alone, with politicians repeatedly claiming to « save the Euro » while giving press conferences between Frankfurt and Brussels.

Threats are issued either to leave the Euro-zone themselves or « kick out » other states.

But how do failing financial institutions or financially troubled governments threaten the Euro ?

The best thing about the creation of the European currency is not its widespread use or easy exchangeability. It is the fact that creating the Euro took away one of the most widely abused political powers from the nation states, without handing it over to a higher authority.

Pretty much all European states abused their monetary policies by arbitrarily printing money and washing away the savings, wages and income of their citizens. They were able to mask their national debt by inflating prices around it and creating a special tax on their citizens. Those hurt the most were people with small savings, people who did not have enough money to save it in more stable currencies, or assets less at risk of devaluing, such as real estate or company shares.

And not only did these policy measures hurt the lower middle class the most, they were also democratically illegitimate. The national banks were poorly regulated, didn’t have to justify their doings in court or parliament, and the people nowhere gets to vote on inflation.

Inflation in Europe in the past 50 years. Inflation increased heavily during the oil crisis in the 70s, but differences between countries show the effect of financial repression

Annual inflation in Italy for example fluctuated around 5% in the 50s and 60s, and around 15% in the 70s and 80s. Germany too, where the Bundesbank was thought to maintain a stable currency, rarely saw inflation to go below 2% annually. France too regularly saw inflation rates between 5% and 15% until the late 80s.

Today, the authority over how much money is being printed, or rather, at what price the money is being given away (economically speaking, it’s the same, though) is determined by bureaucrats, rather than politicians. And because those bureaucrats have a precisely defined measure to which they can be held accountable for (2% inflation overall), it is ensured that the amount of money in relation to how much is produced now grows at a constant rate.

So who could be helped by one country leaving the Euro and reintroducing its own currency ?

The country for once would still not regain the ability to deflate its debt by inflating its currency. All of the Euro-States now owe their debt in Euros, and there is no legal possibility to convert the debt into the new currency. And given that the country will likely again make use of inflation as a policy tool (why else leave the Euro ?) it will be even harder for that country to pay back its debt, as the debt is still in Euros.

The people, however in that country could be massively hurt, seeing their wages and savings again diminished by inflation. And as history shows, people do not go to the streets to fight financial repression.

The European Central Bank does not care too much who or what uses their currency to pay in what way for what services. Montenegro and Kosovo have been using the Euro as their single currencies ever since its introduction, and even with parts of these regions being classified by insurance groups as almost war zones, the Euro as a currency never took a hit.

So even if large European economies like Germany or France face financial bankruptcy, as much as that would hurt their reputation, it would not hurt or threaten the Euro as a currency at all, as long as its still a stable currency under the control of bureaucrats.

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