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Monday, March 20, 2023
BRUSSELS, Feb 19 2010 (IPS) - For 329 million, people shopping with the euro is a part of everyday life. Since its notes and coins were introduced on New Year’s Day 2002, this single currency has made it possible to travel across a 16-country zone stretching from Cyprus to Ireland without having to change the money in one’s pocket or handbag.
Yet while it may sound like a dream for holiday-makers, the economic crisis in Greece has illustrated that there is a flipside to Europe’s experiment in monetary union. In order to guarantee the ‘stability’ of the currency, participating governments have signed up to rules stipulating that their budget deficits should be no more than 3 percent of their gross domestic product.
After Greece admitted its deficit stood at 12.7 percent, it has undertaken to slash it to 2.8 percent by 2012; the measures envisaged to achieve this drastic reduction include cutbacks in public sector pay and spending on education and an increase in the retirement age.
The irony of how these measures will hurt Greeks on low-income far more than the politicians and business elite widely blamed for causing the crisis has not been lost on some commentators. Costas Douzinas, a law professor at Birkbeck College in London, says that the euro-zone’s economic affairs are being run “according to a kind of witchdoctor theory.”
“It is not Greece that is suffering but the Greek working people, the people who are always at the bottom of the pile,” he told IPS. “If you want to have a reduction of the deficit, the first thing to do should not be to hit the most vulnerable parts of society, the low-paid civil servants and the working class. You should hit big capital, the people who profited out of the extreme neo- liberal organisation of the markets.”
The idea of building a single currency was originally hatched by just five companies involved in selling cars (Fiat), oil (Total), chemicals (Solvay), electronic goods (Philips) and pharmaceuticals (Rhône-Poulenc). In 1987 they formed the Association for the Monetary Union of Europe (AMUE), which argued that the patchwork of different currencies then in use in Europe prevented it from competing with Japan or the U.S.
David Boyle from the New Economics Institute, a Massachusetts-based body that challenges conventional thinking on financial management, said that while there is a need for “big reference currencies”, it is wrong to believe that the euro and its common interest rates can bring equal benefits to all areas where it is used. “Interest rates don’t suit every country in the EU at the same time,” he said. “How can they? In times of hardship, a single currency will benefit those at the heart of Europe – maybe Paris and Frankfurt – but it will damage the outlying areas. Single currencies are blunt instruments and will tend to increase poverty around the edges.”
Unlike the dollar or the yen, the euro has been introduced in a situation where its participating countries apply considerably different policies on other key economic questions. Efforts by France, for example, to introduce common rules on taxation have been resisted by other euro-zone members such as Ireland, which has been fearful that higher corporate taxes would act as a disincentive to foreign investment.
Roland Kulke, a researcher with the Rosa Luxemburg Foundation, a left-wing German think-tank, said the economic crisis in Greece has highlighted the intrinsic design flaws in the euro. “You can’t have a common currency without at least a certain kind of coordination on budgetary and financial policies.”
The euro, coupled with the absence of any increase in real wage levels over a two-decade period, has enabled Germany to become a top exporter, Kulke added. More peripheral countries such as Greece, on the other hand, have been unable to devalue their currencies to sell goods abroad at a competitive price.
One of the murkier aspects of the Greek crisis is that opaque transactions by Wall Street firms appear to have contributed significantly to it. Goldman Sachs and other top investment banks are known to have sent high-level delegations to Athens in the recent past, fuelling allegations that they were betting against the euro and helping to falsify the real economic picture in the country by using complex financial instruments to conceal the true nature of the Greek debt.
Susan George, a leading member in the French anti-poverty group ATTAC, called on the European Central Bank (ECB) and other euro-zone institutions to consider a tax on transactions of a high-risk nature. “An international currency tax would help stop speculation against the euro,” she said. “But unfortunately I don’t think the ECB is going to move on this.”
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