The Euro officially comes of age on 1st January 2017. It's time to make a first assessment
While Euro coins and banknotes entered into circulation on 1st January 2002, the Euro had already been introduced as an accounting currency three years earlier, on 1st January 1999. Its first 18 years - waiting for the other ones on 1st January 2020 - are therefore a good moment to evaluate how the single currency has performed during this period, and to reject some of the most popular critics against it.
It was clear from the very beginning that the European Countries adopting the single currency are far from what can be defined an Optimum Currency Area. Indeed, they lack almost all the features theoretically needed to be an Optimum Currency Area: the labour mobility is low, the economic systems are subjected to asymmetric shocks and there is not a real unified federal budget; basically, the only characteristic owned by the Euro countries is a high level of trade between them.
Yet, the poor economic performances of the Euro Countries since the 2000s are not due to the single currency itself, for a number of reasons.
A first popular complaint among the peripheral Countries is the lost of the exchange rate control, thus the possibility of competitive devaluations. Although it is absolutely right that a floating exchange rate can be a useful tool helping to escape from a recession, the empirical evidence (in Italy and other Countries) has shown that companies relying on constant devaluations are less productive, resulting in an economic system less innovative and less dynamic. Moreover, the introduction of the Euro has caused a dramatic drop in the inflation rates of many Countries, allowing more stable economic systems and avoiding the very painful inflation-devaluation spirals often occurred in the past.
Another common thought is that budget constraints and Euro are two sides of the same coin. Indeed, the former is a merely fiscal policy decision that can be reversed while retaining the single currency as well.
In particular, the core Countries running budget surpluses - and thus with a large possibility of action - should increase their spending, boosting the economic growth in the whole area. Moreover, given the ultra low interest rates due to the ECB monetary policy, also the more indebted Countries would have some room for maneuver.
Actually, in recent years the monetary policy of the ECB has been the only factor trying to fight against the crisis. It seems clear that the real issue is about fiscal decisions, and not about the Euro and the unified monetary policy associated to it. It's up to the Governments creating a structural environment suitable for the economic growth in the long run. Especially, it's up to the political will solving the contradiction deriving from a unified monetary policy without a centralized fiscal budget.
The introduction of the Euro has provided a stable monetary system. The ECB is doing "whatever it takes" to help the economy. The first 18 years should be celebrated as they deserve. Hoping now that also the European politics really begins to do its part.
2016.12.31