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France Has Second Thoughts About the Euro

Public opinion in favor of the currency drops dramatically. Also read: Euro Deal Leaves Britain in Splendid Isolation

by
Michel Gurfinkiel

Bio

December 10, 2011 - 12:00 am
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The Europeans got weary of American leadership — especially when things were so good throughout the Reagan and then the Clinton booms — and most people forgot why they were so good. They mused about having their own currency and outdoing the dollar. They did it. They created a currency. But no money. Because they were just unable and unwilling to get together and to build up a federal European government and a federal European army. They did not realize there is no gold without iron.

Just in order to exist in front of the dollar as a mere currency, the euro had to be the most deflationist one ever, i.e., to be linked to superhigh interest rates and a rigid no-inflation policy. This in turn meant that local European economies were suffocated, and that the European welfare state was unworkable overnight. The only way out was to make maximum use of the non-European, still American-centered, globalized world. Even there, however, success was linked to inner discipline. The only eurozone country that really survived the euro was Germany, where industry workers agreed to lower wages in order to stay competitive.

The impact of the euro on the European standard of living was horrendous. In France, it may safely be estimated that most prices went up by 100% to 200% at least, and in some cases by 700%. In other words, prices that were labeled in francs stayed at the same level, except that they were from now on labeled in euros, a 6.5 times higher currency. The lower income class was hurt badly, but could rely on many aids and gratuities from the state. The middle class was crushed, as Pr Louis Chauvel from the Institut des Sciences Politiques showed in a brilliant essay in 2006, Les classes moyennes à la dérive ( “The Drifting Middle Class“).

As for the grandiose scheme of beating the dollar, euro promoters were never, in my estimation, smart or bold enough to do anything on purpose in that respect. But the very existence of the euro had a destructive effect on the American-based money that had sustained world prosperity since WWII. The moment there are two equal weight currencies, people who deal in finance must speculate, i.e., play one currency against the other. If they don’t, they are out. So the euro — the ghost menace — eroded the dollar systematically. Not out of design, but rather out of mechanics.

Dumping the euro may not be the solution at the present stage. Staying with the euro as an anti-dollar is not an option either.

Also read: Euro Deal Leaves Britain in Splendid Isolation

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Michel Gurfinkiel is the Founder and President of the Jean-Jacques Rousseau Institute, a conservative think-thank in France, and a Shillman/Ginsburg Fellow at Middle East Forum.
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