The euro, twenty years later

The euro, twenty years later


Twenty years ago, Rudiger Dornbusch grouped the opinions of American economists about the euro into three broad categories: in the first, there were those who argued that it was not going to happen, in the second those who thought it was a bad idea, and in the third those who predicted that it would not last.

I remember very well the date on which the markets set the first euro / dollar quote. It was on January 4, just a few days before the merger between Banco Santander and Banco Central Hispano, the first major banking operation in the euro area, was announced. An operation that reflected very well the mood of the Europeans: in that Europe everything was possible and the deniers were clearly not right.

Ten years passed and in 2008 we celebrated the first ten years of the euro. Anyone who reads what was then written will find that few shared that the euro was a bad idea. Obviously not everything had been a bed of roses, but the economic and social balance was impeccable: with the single currency, Europe had been able to grow an average of 2.2% in a decade, inflation had been very moderate, unemployment It was always in one digit, capital flows between member countries had multiplied, the public deficit was less than 3% and the net public debt was 54% of the Gross Domestic Product.

In those ten years, the average per capita income of the eurozone grew cumulatively by 28% and the euro became the currency in which 20% of the world's international reserves were denominated. Certainly a balance that did not respond at all to what is usually understood to be a bad economic idea.

The Great Recession that began almost immediately after that celebration tested the eurozone. The passivity in the first moments of the crisis in Europe contrasts with the immediate action of the Americans.

The reason? the lack of a vision shared by the member countries about the origin of the problem and its solutions, which was followed by contradictory and poorly executed national economic policies, and by institutional confrontations that ended up turning what could have been a manageable sovereign debt crisis into a decade of economic stagnation on the continent and a revision of the European social contract that feeds the populist movements that nowadays appear everywhere in the political map of the continent.

Jean Monnet warned us that a united Europe would be built in crises and thanks to the solutions that in those moments of need we were able to find.

And there have undoubtedly been positive developments in European construction in recent years: the single European monitoring and resolution mechanism, for example.

This is the moment to demonstrate that we are going to continue advancing.

Especially because, despite the high social costs and exclusion that the crisis has generated, Europeans continue to support the monetary union project.

In May 2018, the Eurobarometer indicated that 74% of citizens supported the euro and that they relied more on community institutions than on their respective national governments.

Clearly, what Europeans want is more Europe, not less.

The Europe that together we should strive to recreate is a Europe that corrects the fragilities and institutional limitations that the project devised three decades ago suffers.

Europe today is not in a position to give economically and socially forceful and effective answers if any of the multiple disturbances – from commercial wars to the consequences on employment, taxation or competition of the digital revolution – that could affect the economy were materialized world.

Much of the recovery in recent years has been based on the monetary expansion boosted by the European Central Bank, but the legacy of social cuts, high public deficits and high public and private indebtedness continue to weigh on political stability and the potential of growth of the continent.

The full banking union and the integration of capital markets must stop being a promise and become a reality. The rules of the Stability and Growth Pact need to be revised so that in hard times they have the flexibility that society requires and in the bonanzas they force financially sustainable behaviors. And above all, it is essential to recover the political unity to continue moving forward together.

Five years ago European leaders committed themselves to break the vicious circle that in the last crisis turned the problems of liquidity and solvency of a few badly managed banks into the biggest credit crunch in the productive sector and in the worst sovereign debt crisis that Europe I had known in the last 50 years.

Dissociating sovereign debt and banks is imperative, especially now that the normalization of interest rates and high debt stocks can re-create episodes of vulnerability. To this end, the resolution regimes of banks in crisis must be strengthened as soon as possible, reducing the exposure of banks to sovereign bonds of their own country, creating a European deposit insurance system and eliminating the disincentives and fiscal distortions to the internationalization of banks. the banks.

In the medium term, the integration of national capital markets is essential to strengthen the capacity of the financial system to absorb asymmetric economic shocks that will continue to occur within the eurozone.

Mario Draghi – the president of the ECB who in the summer of 2012 providentially announced that "everything that would have to be done to save the euro" … and saved him – recalled a few days ago a reflection of Monnet that remains fully valid.

The problems that our countries have to solve are not the same as in 1950. But the method has not changed: transfer of power to the community institutions, majority agreements and search for a common approach to solve the problems. This is the only way out of the crisis.

Like Draghi and Monnet, I also believe that this is the best way for Europeans to once again make clear to those who two decades ago predicted that the euro would not last.

President of Banco Santander

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