The Euro

Abstract

Alain Parguez is right when he claims that the “euro” is a political failure and an economic disaster, in which French politicians and economists seem to have played a significant role. France’s elite envisaged being a dominant political power on the Continent after the two military defeats of Germany in 1918 and 1945. The two strategies the elite tried were very different, but they both failed. A heavy war indemnity in 1919 and the common European currency in 1990 were seen by the French elite as instruments to suppress Germany’s potential economic (and political) superiority. The French economic elite, represented by F. Perroux and Jacques Rueff, supported the elite’s aspiration of being the leading power within a united Europe by academic arguments. The academic support for the Mitterrand government’s European Union (EU) policy was organized by the former economics and finance minister (and later president of the European Commission), Jacques Delors. He headed the Committee for the Study of Economic and Monetary Union, which unanimously recommended a common European currency “to the benefit of European prosperity.” According to Parguez, the resulting common currency created at a French initiative is the prime reason for the present European economic defeat, which has frustrated the French aspiration to play a leading role as primus inter pares on the Continent. This is so because the rules we are bound to follow make no economic sense for Europe as a whole, which is collectively denied by the European elites. This short commentary discusses whether the economic profession not only in France, but in general, is incompetent, ideologically biased, or simply a “rent seeking” profession.

Keywords:

• Crisis of the European Union
• euro
• France’s mistakes
• false economic arguments

Notes

This theoretical development in real world macroeconomics is superbly told in Davidson (2009).

But later, after being consultant to the Monetary Committee of the European Economic Commission, and in 1972–73 a member of the nine consultants to the commission that prepared a report in Brussels on European monetary integration, he played a significant role in the founding of the euro, according to his official CV (http://www.columbia.edu/~ram15/bob2000.html); see also Mundell (1973) and Sørensen (2005).

In the preface to the French edition of The Economic Consequences of the Peace, Keynes made “an appeal beyond the French politicians [and economists] to the intelligence of France, to that element in the French mind which delights to see things as they are and to draw the consequences” (Keynes 1919: xxii). For a deeper discussion of the consequences of the French aspiration after World War I, see for instance, Jespersen (2014).

“External” is in quotation marks because all three economists were known as being in favor of the idea of setting up a monetary union in Europe.

Later in his career, the Danish Central Bank governor had second thoughts about the advantages of setting up a monetary union in the present form (see Hoffmeyer 2000).

My Italian colleague Bruno Amoroso and I have discussed the increasing fragility of the European Monetary Union in a North–South perspective, as different from the French perspective (Amoroso and Jespersen 2014).

As Parguez correctly points out, this is not a new situation. He has contributed from the very start of the Monetary Union and emphasized the theoretical hollowness, and that the arguments in favor of the EMU were better explained by ideology than realistic macroeconomic theory (Issing et al. 2001), which I have propagated in the Scandinavian countries (see, e.g., Jespersen 2002, 2004, 2005). Empirical support was ample, but at last canonized by the International Monetary Fund (see, e.g., Eyrand and Weber 2013). It is also telling that one of the most widely read textbooks on the Monetary Union by Paul De Grauwe (2012) is lagging behind reality. Not until the eleventh edition expected in April 2016 has the term “euro-exit” not to speak of a theoretical discussion, been mentioned. The possibility of a financial crisis in the Eurozone had to wait until the ninth edition (2012) and was given just a couple of pages.

Additional information

Notes on contributors

Jesper Jespersen

Jesper Jespersen is professor of economics at Roskilde University, Roskilde, Denmark. A member of the EMU committee appointed by the Council for European policy, he submitted a minority opinion concerning the Danish membership of the EMU before the Danish referendum in 2000. He has, in particular, undertaken research into Danish exchange rate policy in relation to the EMU and has contributed at several parliamentary hearings on EMU in January 2009 and February 2012, respectively. He is particularly grateful to Bruno Amoroso, Claude Gnos, and Victoria Chick for many valuable suggestions, without any commitments.