Happy 15th birthday to the euro: Where will it be at 30?

As the chimes of midnight struck on January 1st, 2002, almost 20,000 people gathered in the freezing cold close to the European Union institutions in Brussels to watch a spectacular fireworks display. They were celebrating the introduction of euro notes and coins in 12 European countries, an event many saw as a momentous step on the path towards Europe's political integration.

"The euro is a victory for Europe. After a century of being torn apart, of wars and tribulations, our continent is finally affirming its identity and power in peace, unity and stability," French president Jacques Chirac declared.

Fifteen years later, the EU has witnessed its first act of disintegration, with Britain’s vote in June to leave the organisation. And the euro, once heralded as a powerful binding agent for Europe’s nations, is now increasingly derided as corrosive to the principle of solidarity which underlies the European project.

The single currency remains popular in the countries that use it, according to the latest Eurobarometer report, although it is viewed negatively outside the euro area. The euro is especially popular in Ireland, with support for the single currency at 85 per cent, second only to Luxembourg.

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Support for the EU itself is in decline among Europeans, however, as is the number of EU citizens who say they are optimistic about the union’s future, down from 70 per cent a decade ago to just half today.

This lack of confidence is reflected in the withering of ambition within the European institutions, where few now expect significant further political integration. In Brussels, power has shifted from the European Commission to the European Council, where national leaders pursue an intergovernmental agenda.

Loss of confidence

Much of this loss of confidence is the result of the multiple crises that have shaken the euro zone in recent years, with the erosion of solidarity in one policy area seeping into others, making a common approach to issues such as the migration crisis more difficult to achieve.

There is a cruel irony here, as the euro was conceived by the previous generation of European leaders as a great political project as much as an economic one. When they started the process of economic and monetary union at Maastricht in 1991, it was partly in response to German unification the previous year.

France was determined that a bigger Germany should lose its dominant economic position in Europe and that the Bundesbank should no longer be in a position to determine the monetary policy of the entire continent. The historian Emmanuel Todd, who advised both Chirac and his predecessor, François Mitterand, summed up the French attitude to the euro succinctly: “Behind the euro euphoria lay a wish to make Germany disappear as a financial big power, to resolve the German question once and for all.”

Like the Schengen Agreement, which abolished border controls between most EU states, the euro was seen as a practical manifestation of the usefulness of European integration. It was hoped that it could serve as an antidote to the remoteness of European institutions, while reassuring European citizens that they could take an important step towards sharing responsibility without losing their national identities.

‘The euro must speak German’

France’s masterplan went awry from the start, with Theo Waigel, Germany’s finance minister throughout most of the 1990s, summing up his country’s determination to put its stamp on the new currency with the words “Der Euro muss Deutsch sprechen” (“the euro must speak German”).

The European Central Bank (ECB) was designed in the image of the Bundesbank, independent of political influence and with a narrow mandate focused on price stability. Other major central banks, such as the Federal Reserve in the US, must also take unemployment and economic growth into account when they make monetary policy decisions.

The impression that the currency served the interests of the EU’s more powerful members was reinforced when the euro zone’s two biggest countries, Germany and France, became the first to flout its fiscal rules, and received only the gentlest reprimand from Brussels.

But the low interest rates Germany needed to boost its economy in the early years of this century helped to fuel a massive construction boom in southern European countries and in Ireland, helping to overheat their economies.

With few political tools to influence national policies, Brussels and Frankfurt could do little more than sit back and watch the gathering storm, issuing regular warnings which were universally ignored.

Austerity doctrine

But if the ECB’s monetary policy helped fuel the spending boom and the debt crisis which succeeded it, the one-size-fits-all austerity doctrine imposed by euro-zone governments in response to the crisis helped to alienate citizens from Brussels and from their own governments.

Wielding the whip hand of the creditor, the Eurogroup of finance ministers has forced one government after another to bend the knee, obliging many to break the promises they had made to voters. The consequences of this approach can be seen in the erosion of the political centre throughout Europe, as a growing number of voters conclude that electing a new government will change little unless the entire system is upended.

As the euro enters 2017, the currency has survived its various crises and confounded predictions that it would collapse or disintegrate. ECB president Mario Draghi’s creative approach to the rules has helped to keep the euro zone together and fewer than one in three euro-zone citizens would like to return to national currencies.

But if the euro is likely to survive, its design flaws and the reckless policies pursued by the politicians charged with defending it continue to have serious repercussions for the EU itself and for public confidence in its institutions.