Twenty years ago, on January 1, 1999, a new currency came into being. Eleven members of the European Union fixed their currencies’ exchange rates against each other, thereby creating a new, single currency zone; in 2002, euro notes and coins began to be exchanged and over the years that followed the number of eurozone countries expanded to 19. Now, only eight other members of the European Union do not use the euro — excluding, of course, the United Kingdom, which is due to leave the EU in a few months. The euro is now the second most powerful currency in the world, the conservatism and reliability of the European Central Bank helping to build up confidence in it. It has also transformed life within Europe, making large parts of the continent truly borderless. Not only are there no border check posts, but money does not have to be changed — and, as a consequence, money flows seamlessly across the eurozone. One quarter of all inter-bank lending in the eurozone flows across national borders to other parts of the common currency area.
The euro has thus survived all the disasters predicted by economists and others who worried about the inefficiencies that such a common currency would bring in its wake. Some of these crises have been severe, and fundamental to the euro’s design. The so-called eurozone crisis of 2011 onwards was a product of banks binging on debt, particularly Southern European sovereign debt, denominated in the euro. Unfortunately, the markets did not price this debt correctly, with spreads between (for example) Greek and German debt being too low. As a consequence, when the time for repayment came, some Southern European governments struggled. But because they had no control over their currency, they could not follow the time-honoured tradition of inflating away sovereign debt. The limits of European integration were clearly visible — a true currency area would require political union as well as economic union, enabling intra-region transfers. Without such transfers, giving up the right to inflate away debt makes little sense from a government’s point of view.
And yet the euro is notably popular, even in Greece — or in Italy, which has elected a populist government bent on challenging the authority of Brussels and of the European Central Bank. Nowhere in the eurozone does the euro’s popularity dip below 60 per cent; in many parts of the eurozone, its popularity is over 80 per cent. Now that the Schengen Agreement is mired in controversy following problems with the intra-European allocation of migrants, the euro is perhaps the most politically popular part of the European project. Which is, in a way, revealing — whatever economists and governments may say, they are not thinking from the point of view of common Europeans. Few Europeans would vote, for example, against the euro in a plebiscite. Who would want to see their bank savings redenominated away from a euro that has proved its safety and stability to some other currency that will have to rebuild its reputation? The theoretically weakest part of the European project is, in fact, its strongest pillar.