Ignacio Ramonet on the Euro weakness

Le Monde Diplomatique, October 2000


The real price of the cheap euro
by IGNACIO RAMONET
Too weak or too strong? By mid-September the euro was down by more than 27%
against the dollar and the debate about its strength had torn the tiny group
of "experts" on the European currency wide open. The media express horror
that it is so "dangerously undervalued" and European Central Bank (ECB)
president Wim Duisenberg voices his "deep concern" everywhere. 
But less than two years ago, Duisenberg was warning us of the risks of a
strong euro (1). Then, $1 was worth 0.84 euro, almost what 1 euro is worth
in dollars today, and nearly everyone in France was complaining that the
euro was too strong. Valéry Giscard d'Estaing was the first to call for a
revaluation of the dollar (2), and he was given an ovation in the National
Assembly. Board members of the Bank of France called for measures to weaken
the euro (3). Lionel Jospin and the socialist party likewise cautioned that
the euro should not be overvalued (4). And learned sages explained that the
strong euro was bad news for Europe's economies (5). 
Now, the prophets of doom are taking up their chorus again - this time
because the euro is "too weak". They are shouting down people like Nobel
prize-winning economist Robert Mundell, who has described this "competitive
devaluation" as a "blessing in disguise". Or German Chancellor Gerhard
Schröder for being bold enough to recognise that the euro's weakness was
encouraging exports and stimulating German growth. Or Italian government
leader Giuliano Amato for admitting that Italian firms were delighted about
the weak euro. 
And everyone is forced to admit it. After all, the Paris stock exchange is
approaching the 7,000 mark and the CAC 40 index has risen 16% in eight
months. In six months, France's 20 biggest companies have marked up $14.5bn
net profits, as much as in the whole of 1999. French banks have shown record
profits, too (CIC up 147%, Crédit Lyonnais up 129%, BNP Paribas up 60.5%).
And the oil companies have seen their profits soar. Normally faint in its
praise for the European Union, even Business Week has acknowledged that the
weak euro is a success with remarkable benefits for Europe (6). 
So what is the "correct" balance for the euro against the dollar? According
to Professor Jean-Paul Fitoussi, that is the wrong question. "Economic
theory, largely confirmed by the facts, teaches that exchange rates are
rarely in balance; their normal way of adjusting is to overreact. In other
words, they are 'normally' either too high or too low" (7). The commotion
about exchange rates is all the more irrational because nearly 90% of the
European countries' trade is conducted in the single currency. The EU is a
self-contained economy and the euro remains stable within the euro zone.
Only 10%, in value terms, of the goods consumed in Europe are produced
outside the EU and still subject to exchange fluctuations. 
These include oil, it is true. But there again, what is more "abnormal"? A
barrel of crude at today's price of $35 or a barrel at $10 like two years
ago? Especially when today's crude prices are one third lower than in 1990
in real terms (8). What is so outrageous about a highly polluting
non-renewable energy being expensive? Surely the reverse would be absurd. Is
it right that the consumer countries of the North get more financial
resources from hydrocarbons by way of taxes than the densely populated and
underdeveloped producer countries of the South? And that they do not use
that revenue to develop renewable solar or wind energy, or alternatives to
the all-pervasive lorry, like the piggyback? The euro's weakness is a ready
excuse to vituperate once more against the oil-producing countries: Algeria,
Libya, Iraq, Iran, Venezuela, etc. 
The truth is that, under the strong hand of the market ideologists, the
euro, strong or weak, has enabled structural adjustment to be imposed on the
EU. Ultimately, this will mean the end of a certain concept of the welfare
state, "reform" of the labour market, changes to social security, lower
taxes for the well-off and a smaller public sector. 
Indifferent to the presence of 65m economic outcasts within the EU,
Christian Noyer, vice-president of the ECB, gives the game away when he says
that if the euro were weak in the long term, companies might slow down their
drive to increase productivity and governments might put the brake on their
structural reforms (9). What structural reforms? Theo Waigel, the former
German finance minister, spells it out: "To inspire confidence in the
external value of the euro," he says, there must be "radical fiscal reform,
far-reaching reform of the welfare state and a flexible employment policy"
(10). In short, the market is what counts and never mind the people. 

        Financial Times, 7 December 1998. 
        L'Express, 21 November 1996. 
        Le Monde, 7 February 1997. 
        Ibid, 29 April 1997. 
        Ibid, 12 December 1998. 
        Business Week, 18 September 2000. 
        Le Monde, 5 May 2000. 
        International Herald Tribune, 14 September 2000. 
        Les Echos, 18 September 2000. 
La Tribune, 8 September 2000. 



Arno Tausch, Vienna
Arno Tausch, Vienna