The mood has shifted.
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
Europeans are finally learning to love the euro, it seems, at least according to the latest edition of the Eurobarometer, which is published twice yearly by the European Commission: 64% of the respondents, representing 16 out of 19 Eurozone economies, believe that having the euro is “a good thing for their country,” the highest proportion since 2002, and up from 56% in 2016. Only 26% of respondents thought it was a bad thing.
A further 74% of respondents said that the euro is a good thing for the EU as a whole, the highest proportion in the 2010-2017 series. This is somewhat ironic given that even the ECB conceded this week that the main idea behind the euro as a driving force for regional economic convergence has produced, let’s say, mixed results, having essentially failed where it mattered the most, in Southern European economies:
“It is striking, however, that little convergence has occurred among the early euro adopters, despite their differences in GDP per capita. In contrast to some initial expectations that the establishment of the euro would act as a catalyser of faster real convergence, little convergence, if any, has taken place for the whole period 1999-2016”
Nonetheless, the results of the survey point to a marked improvement in Europe’s love affair with the single currency, as growth in the Eurozone has reached its highest level (a forecast 2.6% for 2017) since the financial crisis began 10 years ago.
It’s a world away from the prophecies of doom and gloom that proliferated this time last year, when it seemed that Europe was on the cusp of an unprecedented anti-euro backlash that could even pose an existential threat to the currency bloc. Since then elections in the Netherlands have returned a solid pro-EU coalition while French voters scorned arch nationalist Marine Le Pen in favor of Emmanuel Macron, arguably the most Europhile president in France’s history.
In Germany Angela Merkel may be having difficulty forming a new government after inconclusive elections in October, but according to the Eurobarometer, it’s not due to public discontent with the single currency: 76% of the German respondents said the euro is a good thing for Germany, up 12 points on 2016. Even in Italy, whose economy has been one of the worst performers in the world since adopting the euro and where banks have been dropping like flies in recent months, 45% of respondents view the euro as a good thing for the country, compared to 40% who believe it’s a bad thing.
In fact, in only one of the 16 countries featured in the survey does a majority of respondents hold a negative view of the euro. That country is Lithuania, where 36% of respondents think the euro’s a good thing, down six points from last year, while 48% think it is bad.
One of the main reasons for the euro’s seeming lack of popularity in the Baltic country is the impact its adoption had on inflation, which has surged from -2% (as in deflation) in 2015 to just over 4% today. Almost all respondents to the survey (94%) believe that there were price increases during the changeover period, with as many as two-thirds (67%) saying the increases were across the board.
Lithuania’s negative experience could end up influencing events in other former Warsaw Pact countries that are currently in line to adopt the euro. They include three members of the Visegrad Group, Hungary, Poland and the Czech Republic, which are already strongly anti-euro. In Hungary little more than half of the population favor euro adoption; in Poland, the EU’s biggest Eastern member, it’s less than 40%, while in the Czech Republic little more than one-fifth of the population support joining the Eurozone and only a third say being an EU member is a “good thing’’.
But as happened in Lithuania three years ago, the countries’ business and financial elite are determined to drown out the naysayers. Indeed, at the company level, euro-adoption has already begun: Czech businesses more than doubled the use of the single currency to pay local suppliers in the past five years to 18 percent. Most big property deals in Poland are already done in euros.
With the exception of Denmark and the UK, which have opt-outs on euro membership, all EU members are contractually bound to join the single currency once they meet all the criteria, whether the people of the country want it or not. In his annual State of the European Union speech, the European Commission President Jean Claude Juncker presented a vision of a post-2019 EU where some 30 countries — compared to today’s 19 — would be using the euro, with an EU finance minister running key budgets to help states in trouble.
It’s a dream that appears a lot less pie-in-the-sky than it was 12 months ago, especially with eight out ten Eurozone citizens apparently agreeing on the need for significant reforms to improve the performance of the economy.
The Commission will be more than happy to oblige. Just yesterday it unveiled a sweeping reform package aimed at completing the bloc’s monetary and economic union. It included a proposal to transform the Eurozone’s bailout arm, the highly opaque European Stability Mechanism (ESM), into a European Monetary Fund that will essentially function as a democratically unaccountable institution, tamping down on deficit spending by troubled Eurozone economies in return for bondholder bailouts.
The EU executive arm’s proposals also include plans to appoint a Eurozone economy and finance minister who would simultaneously serve as a Commission vice president and chair the Eurogroup, as well as create EU budgetary instruments to support the economies of countries using the euro. Such policies seek to further cement the Commission’s authority to impose budgetary rules and structural reforms on member states at whim and without democratic control.
But as long as the Eurozone economy continues to cruise at a moderate speed, fueled by the €4.41 trillion Mario Draghi’s ECB has splashed out on asset purchases of just about any quality, most countries and their elected governments appear happy to tag along for the ride. And for those who don’t, well, they can be shown the door, as the leader of Germany’s SDP party, Martin Schultz, threatened today in a bombastic speech calling for a fully operational United States of Europe — after his party got hit hard during the last election and walked off with just 20.5% of the vote. Clearly, the mood in Brussels and many European capitals has shifted over the last year. By Don Quijones.
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