The “story of the euro” is equal parts Agatha Christie, Raymond Chandler, the Brothers Grimm and Shakespeare, said David Marsh, managing director of the Official Monetary and Financial Institutions Forum.
OMFIF is a London-based independent research network that provides insight into both public and private sector economics. Marsh, who has worked for both British and German governments, took the Amphitheater stage Tuesday morning to give a lecture titled “Europe: Between Recession and Recovery.”
“I would say that Europe has acted too soon in trying to instrumentalize its currency for political purposes,” he said. “And it goes back to old fairy tales about unleashing magical spells that they can’t control.”
Like his literary allegories, Marsh described what is happening with the euro as a hybrid of whodunnit, comedy and tragedy. The current situation has left Europe as divided as it has been since the end of the Cold War. He likened the European Union to a fanciful zoo.
“If you want to have a lot of exotic animals with different habitats, structures and climates and put them together in a rather large menagerie, then they are going to have to make it work somehow,” Marsh said.
Now that the credit bubble has engulfed Greece, he said somebody is going to have to pay. The need to pay creditors and the delay in doing so was less “kicking the can down the road” and more “kicking the urn down the road,” Marsh said.
The belief behind the euro was that a single currency and a single market would tie its nations together further. However, a monetary union without the corresponding political union has left Europe a car without a driver, Marsh said. He quoted former German Chancellor Helmut Kohl, who likened the “ugly-yet-necessary” euro agreement after German’s post-Cold War reunification as “a castle in the air.”
The diffusion of fiscal responsibility with the euro crisis has left Europe a house of cards susceptible to its weakest links. In addition, Marsh said, there is “a vacuum in world leadership” that is keeping Europe in the background of international affairs while it deals with recession and nationalism at home. Consequently, the U.S. has taken the lead on both militaristic and peacekeeping world endeavors.
“The problem about Europe is that nobody is really in charge, and that’s pretty bad for political responsibility,” he said. “Everybody tends to look at the other fellow and say, ‘He’s to blame.’ I think that’s one of the most pernicious points.”
While Monday’s lecturer, New York Times columnist Roger Cohen, quoted Winston Churchill’s 1946 speech wherein he described a “United States of Europe,” Marsh followed up with context and background on the origin of the phrase.
Marsh traces the origins of the EU to the Franco-Prussian War that ended with a unified Germany in 1871. It was in the aftermath that the Romantic Victor Hugo first referred to a “United Europe.” The appellation was less a call for unity than a cry of lamentation, Marsh said. Churchill specifically left Britain out of idea of “United States of Europe,” instead referring to his country as a “sponsor” of a united Europe.
Marsh outlined the reasons the euro was adopted with four key points. First, it was instituted as a desire to unite France and Germany. Second was the call for a “single currency for a single market.” Third, it was meant to be a rival to the American dollar, which was viewed as unfairly hegemonic. Fourth, it was meant to keep a leash on a Germany that many in Europe — including the Germans themselves — still feared after the horrific reign of the Third Reich.
“But crises don’t engender solidarity, even though you might say they should,” Marsh said. “It tends to engender bigotism. So I do not see any time soon the debtors and creditors pooling their forces in a political union.”
He called the “single currency for a single market” argument nonsense for the same reason. Politically, if everything was in place beforehand, then it might have worked. But Marsh called prematurely installing the euro without the proper political backing a waste. The euro is also not the credible alternative to the American dollar it sought independence from.
In the most ironic twist, the fourth point, that the euro was meant to keep Germany in check, led to the country being the foremost lender and sustainer of the euro. Marsh said it was the criminal negligence of debtors in countries such as Spain, Portugal and Greece that made the current crisis avoidable yet predictable.
“It’s not surprising,” he said. “If you give a child a birthday present of money, you can’t expect that child to put the money in the bank and store it for his or her education. They take it to a discotheque and have a little party, and that’s essentially what happened with these countries.”
Despite the trials and tribulations, Marsh finds silver linings. The euro crisis and the 2008 recession combined to force an effort to bind banks together with more stringent regulatory oversight. Germany has also stepped up to pay and forgive some debt. For example, Greece’s debt is equal to 180 percent of its GDP, and German taxpayers are on the line for 90 percent of it.
Marsh said as long as the “nuisance value” of Greece is greater inside the EU than out, it will remain a member. Given its location, surrounded by unstable Balkan states and with a war-torn Ukraine to the north, he said it was in the best interests of all to keep the country within.
“I think that the idea of a single currency should have been put on the backburner. It came about 50 years too soon,” he said.
In the future, Marsh foresaw a period of middling recovery amid recessions and continued economic successes for Germany. The migration crisis, which has seen millions of migrants uprooted from North Africa and the Middle East and an additional 2,000 die attempting to cross the Mediterranean this year alone, has exacerbated the economic troubles of Southern Europe.
Marsh hopes the European story teaches humility at good intentions gone awry and respect for those who foretold the signs of growing problems.
“I think it teaches us a sense of responsibility about Europe’s place in the world,” he said. “My hope is that Europe will get on to the right course with America’s help. Churchill said ‘the Americans always do the right thing after they have exhausted every other option.’ ”