Over the 25 years of the euro, the single currency has brought division rather than unity to the EU. The constant error of the European political debate has been to believe that a 'geopolitical EU' can be achieved without fiscal union.
The three states that have given the EU the most internal problems in the last decade have been the United Kingdom, Poland and Hungary. What they all share is that none of them ever entered the euro, which this year celebrated its 25th anniversary.
I don't think this is a coincidence. Imagine what Brexit would have been like if the UK had not only had to leave the EU, but also change its currency and central bank at the same time. The reason why Viktor Orbán, the Hungarian prime minister, can cling to the notion of a Europe of fully sovereign nation states is precisely because his country has not finished being part of the largest political integration project in the history of the EU.
In a conversation I had a long time ago with the former Italian Minister of Economy Tommaso Padoa-Schioppa, who had served on the board of the European Central Bank just after its founding. Padoa-Schioppa, who died in 2010, was an economist who saw the euro, above all, as a geopolitical vehicle. For him, the single currency was a question of power.
But the great experiment has failed. It has only been successful in one sense: the euro has not been broken and is technically well managed. The tragedy of the EU currency has been that the Union's leaders lost interest in completing the project of economic and monetary integration after the introduction of the currency in 1999.
At the time, I respected the UK's decision not to join the euro. In Britain there was greater awareness of the political consequences of a monetary union. The Germans, in particular, denied this point, reducing the reasons for monetary integration to economics alone.
John Major, the British Prime Minister, fought hard for his opt-out clause in the euro during the Maastricht Treaty negotiations in 1991. Denmark also achieved exclusion following a second referendum on the Treaty.
But not Poland and Hungary, nor Sweden and the Czech Republic. These four countries chose not to participate. One of the biggest mistakes the EU made in its headlong rush to enlargement in the early 2000s was not insisting that Member States prepare to join the euro later. Poland was admitted to the EU even though its own Constitution prohibits it from adopting a foreign currency.
Now the same mistake is repeated. The EU summit in December gave the green light to accession negotiations with Ukraine. Joining the euro has not even been taken into account in those talks, as it was not 20 years ago. With Ukraine as a member, the EU would find itself with another Hungary and another Poland. After the experience the EU has had with those two countries, the last thing it would want is another member that sees the union merely as a club of sovereign states.
The euro has given rise to another category of division: within the eurozone itself. In 2015, Greece toyed with Grexit for a while but pulled back from the brink, even though Alexis Tsipras, the Greek leader at the time, had won the majority of votes against the EU's austerity measures. EU in a referendum. Three years later, a newly elected populist Italian government was considering a parallel currency, and even made preparations.
Today, the Netherlands could become a more serious source of disruption. Geert Wilders, leader of the far-right Freedom Party, won the November elections by a landslide, but has not yet formed a coalition. Still, it is very likely that he will become the next Dutch Prime Minister. In the past, Wilders has also advocated for the Netherlands to leave the EU and the euro.
In the 1990s, the great British-German political scientist Ralf Dahrendorf predicted that the euro would become a source of political division in Europe. The euro has proven to be a cause of economic divergence between a prosperous north and a poor south.
The eurozone banking system is more fragmented today than it was 25 years ago. France and Italy have run budget deficits persistently higher than Germany's for long periods. One of the many political consequences of economic and fiscal divergence is the growing reluctance of Germans, in particular, to accept joint debt instruments, or even joint debt-financed programs such as the recovery fund during the Covid pandemic.
As the divergence of EU members feeds into each other, the window for a fiscal union is closing. A single banking system, a single capital market and a single public debt would have been prerequisites for the dream of a geopolitical EU. Not insisting on it was a political decision. Fair enough, but those who supported that option have no right to complain that the EU lacks geopolitical power.
However, today in the EU there is a lot of talk about geopolitics as a requirement to become a competitive global player, especially by those who have never been supporters of fiscal union. To have a single European army, a single European defense public procurement policy and corresponding financing are needed. The EU should be able to deploy its currency as an instrument of foreign policy, just as the United States does with the dollar. The idea that EU countries, several of which have fewer populations than some British counties, should have a full right of veto on foreign policy, should also be abandoned.
For the first 25 years of the euro, I supported European fiscal union. I have now accepted that this will not happen in the short or medium term. Nor will the EU realize its geopolitical ambitions. The constant error of the European political debate has been to believe that one thing can be achieved without the other.
Article translated from English from the website The New Statesman.
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