The euro – Infallible, even in crisis

Nowadays it is considered one of the greatest successes of European integration, but the launch of the single currency was beset with uncertainty right up until its creation on 1 January 1999, more than four decades after the setting up of the European Economic Community.

Jacques Santer, the then president of the European Commission, recalled that it was Germany’s reluctance to give up the Deutschmark that made European leaders doubtful about the single currency. "Until it was launched, we were not sure, because in Germany the subject was so controversial," said Santer.

Even those who believed in the single currency thought that only a few countries would be able to join it at the beginning, the Luxemburger remembered. "I was asked, in 1995, how many countries I thought were to be part of the single currency. I said five or seven - France, Germany, the Benelux and perhaps another two. Nobody could imagine that the euro would start with 12 countries." In 1999 eleven countries formed the eurozone. Greece joined in January 2001, a year be-fore euro notes and coins were introduced.

Santer said that member states had been motivated by a realisation that they needed monetary stability to combat inflation. He denied that the then German chancellor Helmut Kohl had been am-bushed by France into accepting the euro, against the will of his population: "Kohl was convinced that a monetary union would be the glue of a political union. He was convinced that through the single cur-rency a political union was to be created."

Santer recalled that choosing a name for the single currency had been politically fraught. If it had not been for the then Spanish prime minister Felipe Gonzáles, the single currency might have been bapti-sed ‘franc’. In 1995, in a discussion with Kohl, the then French prime minister Edouard Balladur suggested that the single currency should be called the franc. "Kohl said he would not mind," said Santer. Ball-adur and Kohl then tasked Santer with sounding out other leaders about the name. "I told Gonzáles and the reaction was qui-ck and strong. He said: ‘franco? Impos-sible’." It was Kohl’s finance minister Theo Waigel who came up with the current name.

Santer recalled that his biggest fear at the time was that the euro would be weak. "We were a bit scared that the euro would not hold. All the conditions were met for the euro to be strong and stable, but one cannot control the markets… at the beginning, the euro fell, but then it quickly found its cruise speed."

His judgement now was that "the euro is strong and stable" and protected the population against crises. "The rise in the price of petrol from $13 to $60 did not play a role in inflation, because the euro acted as a shield against crises," he said, criticising those politicians, in particular in France, who claimed that a strong euro was hurting Europe’s competitiveness.

"They have forgotten where they came from," he said. "I remember the monetary adjustments, with the weak franc, the inflat-ion hikes, which destroyed the social fabric of society…the euro brought the current stability to France, the strongest beneficiary of the euro. And the Germans are champ-ions of exports with the same strong euro."

Looking back, Santer said that the biggest failings of the euro’s founding fathers were poor communication and not giving the euro the backing of strong economic governance. "To have a single currency, we needed a certain harmonisation of economic policies," he said. "We realised that was not possible, because member states did not want to give up control, but we had the Maastricht criteria to achieve a certain convergence and we had the Stability Pact."

He said that during talks on a new vers-ion of the EU constitution, which would be launched later this year, member states should attempt to strengthen the economic governance of the eurozone, but added that that would require "sacrifices from the member states". Santer is convinced that the euro is irreversible. "Even in the event of a crisis, the euro is infallible."

Nowadays it is considered one of the greatest successes of European integration, but the launch of the single currency was beset with uncertainty right up until its creation on 1 January 1999, more than four decades after the setting up of the European Economic Community.