It is slightly surreal to read the awestruck coverage from when the euro was launched 25 years ago, on January 1, 1999.
There were quasi-religious celebrations among the 11 founding states (Greece fatefully joined two years later). When euro coins and banknotes finally launched three years later, fireworks streaked through dark winter skies. Buildings were illuminated in gold stars. Politicians made speeches heralding the dawn of a new era of peace and plenty.
Even British journalists, especially at the BBC, got in on the act.
‘As the midnight hour approached, a giant inflatable tree blossomed into life,’ reported Newsnight’s Paul Mason from Maastricht.
‘For once the Ode To Joy seemed exactly the right tune,’ he added.
On Radio 4’s flagship Today programme, James Naughtie, covering the launch in Paris, borrowed the language of the Gospels: ‘The arrival of the currency that the fathers of modern Europe dreamed about are symbols now made flesh.’
To a degree, our state broadcaster was betraying its own sympathies. Leading figures within the BBC had made little secret of their view that Britain should join the new currency at the outset, and plainly felt as if they were watching someone else’s party with their noses pressed up against the windowpane.
But, in fairness, BBC journalists were accurately reporting on the mood that prevailed across the Continent.
As the then BBC Brussels correspondent, Jonathan Charles, later recalled: ‘Even now I can remember the great air of excitement.
‘It did seem like the start of a new era. For a few brief days, I suppose I and everyone else suspended their scepticism and all got caught up in that euphoria.’
A few years later, when the credit crunch hit, that euphoria would seem like a distant dream. Monetary union would lead to a prolonged recession, especially in the peripheral EU members — Ireland, Spain, Portugal, Italy and, above all, Greece. Unable to decouple and devalue their currency, these states had to cope with punishing levels of unemployment and emigration.
But back in 1999, all the talk was of how the new money would replace the dollar as the world’s reserve currency.
Even then, a measure of self-deception could be heard in the public pronouncements. Supporters of monetary union had never been primarily interested in the economics of the project. The overriding goal, for them, was political.
Jacques Delors, the president of the European Commission from 1985 to 1995, who died last week aged 98, designed the euro as a tool to unite Europe. The father of the single currency wanted the EU to become a single country — or, at least, to adopt the attributes and trappings of a country.
Delors believed that, just as it had its own president and parliament, passport and driving licence, embassies and courts, so the EU needed its own currency. As a sign in the Commission HQ in his day put it ‘Europe — votre patrie’ (Europe — your country).
Hence the Eurocrats’ revivalist tone. Monetary union, for them, was not about price transparency or exchange rate savings. It was about ensuring peace in Europe by jamming the constituent nations so tightly together that conflict became impossible.
They were prepared, if necessary, to pay an economic cost to secure that political goal. But they could not sell the euro in these terms.
Most Continental voters, although happy enough with EU membership, were attached to their francs and marks and guilders and schillings. They needed to be won over by promised material benefits.
So the architects of the new currency worked to convince their electorates (and perhaps themselves) that the euro was a pragmatic endeavour, a way to reduce transaction costs and facilitate trade.
Judged by economic criteria, the currency must be reckoned a failure. Perhaps not the disaster some of its opponents predicted but in no conceivable sense a success.
Since 1999, the eurozone has underperformed by almost any measure. It has seen poor economic growth, whether measured against the rest of the world, against other developed economies — such as the United States and Australia — or against those EU members that kept their currencies.
The argument about transaction costs was already being overtaken by technology as the new currency took physical form in 2002. Back in the 1990s, supporters of the euro were fond of telling the story of a putative traveller who set out from Dover with £100, changed it in every EU state, losing a portion in fees each time, and came home with only £59.
Leon Brittan, Trade Secretary under Margaret Thatcher and later a vice-president of the European Commission, as I recall, was especially fond of this imaginary anecdote.
Quite why anyone would go on such a pointless journey was never explained. But, in the event, the story quickly became redundant, first as ATMs reduced their fees, and then as banknotes began to disappear altogether.
Sure, there are still residual charges when you use a different currency but the savings attributable to using a common currency do not come close to offsetting the cost of having the wrong interest rates imposed on your country.
Even more inaccurate were the predictions of a commercial bonanza. EU leaders talked of doubling or even tripling trade within the eurozone. Gordon Brown fell for it, telling MPs in 2003 that ‘with the advent of the single currency, trade within the euro area has already expanded and, with Britain inside the euro, British trade could increase substantially with the euro area — perhaps to the extent of 50 per cent over 30 years.’
So, 25 years on, what is the actual figure? According to a European Central Bank study in 2021, the euro had increased cross-border trade by just six per cent.
If the benefits were massively overplayed, the downsides were ignored altogether. There were two linked arguments against the euro.
The economic argument was that members were too divergent. They did not constitute what economists call an ‘optimal currency area’, meaning if the exchange rate and interest rates were appropriate for one part of the eurozone, they would be wrong for other parts.
The way to resolve this problem would be automatic transfers through a pan-European tax and benefits system.
This, of course, would turn the EU into something much more like a single nation — which is what the fathers of the euro intended.
But it triggered the second argument against the euro, namely that it would involve a loss of democracy. If your interest rates, exchange rates and tax rates were set in Frankfurt and Brussels, it would make little difference how you voted in national elections. Eurosceptics, who had been voicing these concerns since the plan for monetary union was agreed at Maastricht in 1992, were vindicated when the euro faced its first challenge: the 2008 global financial crisis.
It turned out that a single interest rate had fuelled an unsustainable debt bubble in the peripheral states. These countries, unable to let their currencies sink to a realistic level, were now forced to raise taxes even as they toppled into recession.
The rules were torn up. Bailouts were unlawful — not just in the sense that they had no legal base in the EU treaties but in the sense that they were expressly prohibited under Article 125 which states: ‘Member States cannot take on the debts of another Member State.’ But, when the crisis hit, all that was thrown out of the window. As Christine Lagarde, then the French finance minister, put it with admirable frankness: ‘We violated all the rules because we wanted to close ranks and really rescue the eurozone.’ Opponents of the euro were correct in their analysis; but they underestimated the resilience of the currency. Greece could have made the decision to leave, but chose instead to suffer inside.
Other countries have joined since the crisis. The euro might not have made its citizens wealthier, and no one these days suggests that it will become a global reserve currency, but it is plainly going to be around for a while.
The problem for British Europhiles is that they did not give the new currency their qualified support. They warned of utter ruin if we stayed out. Tony Blair, the late leader of the LibDems Paddy Ashdown, and Mrs Thatcher’s nemesis Michael Heseltine all told us that keeping the pound would ensure that we ended up poorer.
‘Britain’s economy will be damaged if we stay out too long,’ said the former Chancellor Ken Clarke.
‘I doubt that in the end it is possible to run a sort of parallel currency economy,’ said Peter Hain, Europe Minister under Tony Blair.
‘If we remain outside the euro, we will slide into a position of poverty relative to our more prosperous European neighbours,’ said Nick Clegg, David Cameron’s Lib Dem eputy prime minister.
In the event, such predictions helped tip the country into voting Leave. Voters were too sensible to fall for predictions of disinvestment and high unemployment when they had heard exactly the same threats from exactly the same people, and had found them to be baseless.
You might object that the two questions are separate, and that it is possible to be pro-EU but anti-euro. But British Euro-enthusiasts did not make that distinction at the time. On the contrary, they argued that being in the EU should mean being in the euro.
Read, for example, Hugo Young’s Guardian column in January 1999: ‘Now that the euro is here, the prime and living project of the European Union, political development, is unavoidable.
‘To oppose it is no longer an academic exercise, but a case whose logic would lead to the steady distancing of Britain from the rest of Europe and ultimately from the Union. It will be a choice not just about the currency but about the entire future of Britain as a European country: no pretence, no bolt-hole, no escape from finality. Personally, I welcome this.’
Not only did that linkage ensure Brexit but it has made re-entry impossible. Britain and Denmark negotiated opt-outs from the euro in the 1990s but adopting the currency remains a condition of membership for everyone else. Going back in, in other words, would mean signing up to the euro — something that most Remain voters level-headedly oppose.
British non-membership turned out to be beneficial to all sides, as even Delors went on to acknowledge. Our economy is cyclically and structurally different from that of the EU. We are heavily services-based, with smaller farming and manufacturing sectors than almost every EU state.
We trade more with non-members than with members and are on an Atlantic economic cycle. We have an unusually high level of home ownership, making us peculiarly vulnerable to changes in interest rates.
In short, we would have made the eurozone even less of an optimal currency area than it is.
As William Hague, who was widely savaged for opposing the euro at its launch, later observed, our membership would have been like an elephant clambering into a rowing boat.
Twenty-five years is long enough to get the measure of the euro. As humans, at 25, we have typically completed our education, settled down and chosen our path in life. What, then, can we say about the single currency?
Economically, it has been a disappointment. Not a catastrophe; not the worst challenge facing the EU. Germany has been more adversely affected by its energy policy than by the euro, France by its misdirected state intervention, Italy by its debt.
But the promises that were made at the birth of the euro, promises of steady growth and job creation, turned out to be nonsense.
Yet Delors ended up getting his way. On December 20 this year, the EU adopted new rules on what its members are allowed to spend and borrow, another step towards what Euro-enthusiasts call ‘fiscal union’ — and an increasingly sclerotic superstate.
At the same time, the ECB has been buying debt from the national governments in such a way as to make them more liable for each other’s obligations — again, a step towards fiscal union.
Britain was able to leave the EU because it had kept the pound but others do not have that luxury and so face what we might call the ‘SNP dilemma’: how do you explain to voters what would happen to their money?
Three years after the launch of the currency, notes and coins came in. I was an MEP at the time, and had left my car in a Brussels car park over the Christmas recess. When I tried to pay, I found the machine had not yet been adapted to take the new coins. I asked the car park attendant if he could change my euros into Belgian francs.
‘Beuff, you English,’ he exclaimed, shaking his head in amusement. ‘We are moving OUT of the francs and IN to the euros!’
So they were. Thank heaven we did not follow.
- Lord Hannan of Kingsclere is a former Conservative MEP and serves on the UK Board of Trade.
Robert Johnson is a UK-based business writer specializing in finance and entrepreneurship. With an eye for market trends and a keen interest in the corporate world, he offers readers valuable insights into business developments.
