It's not quite as true as it is in the case of the global warming panic but it's still true that the main drivers that led to the birth of the euro were some desired political signals, not economic advantages. Most of those leaders didn't care whether the shared currency would actually make the economies more efficient (it was pretty obvious that it wouldn't have); they introduced the euro as an argument for a further, possibly unstoppable integration of Europe, something that they wanted to achieve for purely dogmatic reasons.
Gauß on the 10 Deutsche Mark banknote (€5.113 according to the last exchange rate)
Central banks of the European nations have finally started to work on their plans what to do when the eurozone splits. They should have started a long time ago but they're lucky that it's not too late to think right now.
Since 1999 or so, sixteen other nations have de facto joined the monetary union with Germany.
Elite mathematicians, artists, and politicians together with the normal distribution and other helpful and profound insights on the DM banknotes were replaced by dull non-existent buildings but that's really not the main reason why the euro has contributed to the deterioration of the competitiveness, economic output, and fiscal stability of many member states. The inability of the weaker nations to devalue their currency was the problem, of course. It helped the competitiveness of the products to drop and the budget and trade deficits (i.e. the total debt) to skyrocket. What the other nations should have thought in advance was whether joining the DM/€ union would make them happier and wealthier. A shared currency doesn't imply that "all the economy" will suddenly look just like the German one.
Still, some European politicians have associated themselves with the failed project so personally that they're emitting hysterical messages similar to those coming from the mouth of José-Manuel Barroso, the head of the European Commission:
“We have to make it clear together that we will do everything to preserve the irreversibility of the euro. That’s why we need more discipline, more convergence.”That sounds like the commitment by a fanatical member of Al Qaeda, something that wouldn't be said by someone whom I consider a realistic politician. Face it, Mr Barroso: there is nothing irreversible about the euro. Currencies come and go. The task for good politicians should be to do everything to help the people they represent and it is very unlikely that the preservation of the project of the euro whatever it costs may be a part of such an approach.
Barroso doesn't represent the voices of a majority of the business and individual citizens of the EU – many of which have been harmed by the euro. However, he doesn't even represent the set of nations, either. He is an official in the EU, not the eurozone, and 11 EU member states use different currencies than the euro and many of them such as my homeland are very happy about this "coincidence" which is why we will work hard to make this "coincidence" continue.
Merkel and now also Sarkozy want a fiscal union in the EU and they need to change the EU treaties correspondingly. Needless to say, this would be way out of the tolerance levels of people like me and I actually believe that there would be a near-consensus in the Czech Republic that we would leave such a European Union. Such a change of the treaty would have almost no change to pass here, anyway. I simply believe that despite their imperfections, the Czech politicians are still more capable of managing our national finances than some zealous politicians representing a "metacountry" that hadn't existed before and that includes hundreds of millions of people who find it totally normal to live beyond their means. I don't want those people to suddenly influence the budgets affecting 10 million Czechs as well. Even the Czechoslovak communists were "fiscally responsible", so to say, within the limits outlined by the largely dysfunctional socialist economic system. It seems guarantee that things would get worse for us if we "dissolved" ourselves as a sugar cube in the unified European fiscal coffee.
Not all post-socialist countries share this sober attitude with Czechia. Donald Tusk, PM of Poland, claimed that the "solution to the debt crisis has to include all 27 EU member states". He added that "some people think that in order to save money, we need to jeopardize the community of 27 member states: that is a devilish idea." He said it at a gathering of the European People's Party, a coalition of would-be right-wing but euronaive and generally politically correct parties of the EU.
I find Tusk's words kind of scary. We need to re-evaluate the arbitrary unions that were created in Europe. We need to do so in order to save money and for lots of other reasons: we really need to save trillions that will otherwise be lost in a dysfunctional currency union; we need to save the last traces of sovereignty and financial accountability and responsibility of the individual nations, individual companies, and individual citizens. Tusk makes it sound as the dissolution of some aspects of the human life that have been counter-productively moved from the nations' capitals to the Brussels is equivalent to the extermination of the Europe's population. But what would be sacrificed would be just some abstract mechanisms that didn't do a good job in making the people and nations happier and wealthier. "Less unified" isn't equivalent to "bad" and in many cases, they're the opposite adjectives to one another.
At any rate, I have no idea where Tusk's zeal may come from. Thank God, we don't have any equally euro-zealous politicians in the Czech top-tier politics. I am thanking God but the truth probably is that the absence of similar Czech fundamentalism in the European and other matters boils down to the absence of God in my homeland, at least when it comes to the country's physical matters. OK, so thanks to the absence of God. ;-) Our Northern cousins, the Poles, are extremely religious and they have apparently converted a part of their deep religious faith and fanaticism to the euro-fanaticism. Thankfully, we had almost nothing to convert. ;-)
The news coming from Czechia today are totally different, relaxed, rational, and dominated by a wisely detached view, despite the predictions by some that the euro breakup would drag the Czech economy down by 8 percent (something I don't believe). Well, even such a drop wouldn't make a history. The freshly released Czech Republic's October trade data show the record-breaking monthly trade surplus of CZK 25.5 billion, or USD 1.3 billion or so, because exports grew 9.6 percent year-on-year and imports grew 4.9 percent. So even a 8% drop may fail to erase the last year's gains, at least if you equate the changes in the exports with the GDP.
"Our coffin with the euros is about this big."
Russian president Dmitry Medvedev is in on his official visit to Prague. He was there a year ago to sign some of the nuclear arms treaties with Obama. And I believe it's a relaxing experience for him, too. Medvedev mentioned that the elections in Russia were democratic; Czech president Václav Klaus refused to make a statement about them. Medvedev says that the protests are a part of democracy, something that is enough for me to be sure that he's no dictator. He wants Russia to avoid chaos which I understand and the Russian standards of democracy will probably remain lower (or "different" in the sense that we would normally call "lower") than the Western standards and I think that it's just a part of the reality that people should get used to as long it doesn't threaten them.
Last night, Medvedev had some typical Czech dinner with Klaus in a Strahov monastery (see the 40-gigapixel photograph of its library). But most of his negotiations are about business, about productive things. Russia wants to beat America and France and build the expansion of the Temelín power plant; Klaus seems to support Medvedev's horse (the consortium is led by Škoda Pilsen with HQ in my hometown: Klaus' justification is that he likes that Czech companies will get the maximum amount of work with the "Russian solution"). But there are many business projects that have already been decided: they signed contracts worth CZK 54 billion (almost USD 3 billion). Even though it's clear that we don't share any "command center" with Russia these days, the relationships are healthy after the split of the socialist bloc, much like our relationships with the closest neighbors, Slovakia, have been after the Velvet Divorce. Of course that Klaus' lack of any Russia-phobia, to put it mildly :-), is a part of the good atmosphere. But let me tell you that as a former big teenage dissident who appreciated that many bad things did come from Russia, I find it fortunate that the relationships with Russia are free of serious problems. It's our Western friends (well, and Southern) that seem to be producing problems and "forced unions" and we are just getting lots of bad stuff from the EU these days.
Medvedev classified Klaus as a world's top expert in macroeconomic matters. Let me say that I find it refreshing that after those 40 years after the war, sometimes it's not the Russian guy who must be described as the ultimate guru. ;-) Before 1989, I only experienced this thing "on my own skin" when we went to Sverdlovsk [Yekaterinburg] on the Euro-Asian border and taught all of our Russian hosts (we lived in carefully selected Russian families that had to be shocked by the pro-capitalist Western Slavic cousins) how to speak Czech for two weeks. Klaus semi-jokingly (but, just to be sure, clearly not quite jokingly!) offered Russia to convert all of its euro holdings to the Czech korunas. Medvedev suggested that it may be a good idea to consider but they have really lots of euros which is why they're nervous about the eurozone's anxiety, too.
Maybe they should have started with the conversion years ago. More seriously, there are simply lots of other currencies in the world besides the U.S. dollar and the euro.
Quite generally, I think it's unfortunate that these important matters (related to the European "debt crisis") are being decided by people whose decisions are controlled by their personal political interests, blind ideological goals (European unity at any cost), and zeal in general – instead of rational leaders. As long as most key players would behave rationally, the euro breakup wouldn't be any catastrophe. The beginning of the euro and the end of the euro are really just two events that are a priori symmetrical to one another. We have sometimes switched from a currency used at a smaller territory to a currency used on a larger territory and vice versa. One can't say that one of the steps is universally worse than the other. The split of the Czechoslovak crown in 1993 was a totally flawless overnight operation. Of course, it was probably easier in 1993 with limited amount and diversity of investments that people had 3+ years after the fall of communism; but it still shows that a currency breakup doesn't have to be a tragedy and may even be very helpful.
Don't get me wrong. My recipe isn't to split the eurozone as quickly as possible. For example, I would find it a very bad idea to say "good-bye" to countries that are going to bankrupt – such as Greece and let's hope that it's the only one at this point – before they go bankrupt. The bankruptcy has to occur within the eurozone, otherwise we will face huge conflicts about the question whether the debt remained in the euros or dropped to the corresponding number of new drachmas.
But there are many lessons that good politicians and good economists should have learned from the nervous developments in 2011. And politicians pushing things that turned out to be counter-productive are simply not doing a positive job. Instead, they should learn a lesson and they should also behave rationally and calmly, as true leaders, giving a part of their confidence to the markets. Proclamations of the type "if my proposal XY to create the Fifth Reich isn't accepted, the Milky Way will explode" don't belong to this category of rational statements. Nothing will explode, except for some politicians' personal and political ambitions and their ability to hide that they've been betting on a hopeless horse for years.
And that's the memo.