This Friday (16th November 2018), Room for Discussion will hold an interview about the future of a single currency in the European Union. Daniel Gros (Director of the Centre of European Policy Studies) and Enrico Perotti (Professor of International Finance) will be interviewed to help us understand the current political climate in the EU, as well as essential reforms that might have to be put in place.
The aim of this short article is to provide an overview of this topic, and hopefully spark interest to listen to what experts have to say about this.
First, one needs to understand why a single currency would make sense for the European Union. From a global point of view this would help the Euro to become a more important currency in the world, which is currently second behind the US dollar – the most important international currency today. But this does also imply advantages for individual consumers and companies, such as facilitating cross-border trade, and increases product variety, which furthermore results in a growing economy.
Nevertheless, there are still 9 out of 28 countries in the EU which still have a different currency, and there must be a reason why this is the case…
If we remember the years 2010-2013, when Greece was facing its financial crisis, we see that the EU has not always been as sovereign as it would have liked to be. This event almost tore the euro apart, and in order to prevent this from happening again, the French President Emmanuel Macron spoke about “rebuilding Europe” on June 18, 2018. He concluded that fundamental reforms were necessary with the aim to stabilize, strengthen and insulate the Euro again. His vision included a multiple hundred-billion-euro fund to stabilize countries that suffered from short-term shocks, but until now this idea has not found much support from the other European countries. Germany, Denmark, Finland, Ireland, the Netherlands, and four other countries have agreed that now is not the time for such a reform, since they fear this could lead to a divided Europe, with different rules for the EU, and additional ones for the eurozone.
Current events such as the Brexit in the UK, the attempt from Catalonia to become independent, and the rising populism all in Europe are dominating the summits of EU leaders, making a potential crisis like the one in 2010-2013 seem irrelevant. Additionally, in the upcoming year, the focus of EU politicians will most likely be even more on the Brexit, which is supposed to take place in March, and the elections in the European Parliament in May, which could both lead to drastic changes for the European Union. However, many analysts argue that even though there is no immediate threat of another financial crisis, the European Union has to make reforms to protect the Euro. Philippe Legrain, a senior fellow at the London School of Economics` European Institute, and direct adviser to the European Commission president argues that the eurozone’s institutional framework needs fundamental reforms in four big areas: fiscal policy, finance, democratic choice and accountability, and economic imbalances.
“Make no mistake, the euro desperately needs revamping.”
As we can see the current European Union is a very complex system, with many political and societal changes going on, events that might substantiate the reforms needed to protect the Euro. Even if the stabilization and protection of our single currency does not seem as important, considering everything that is going on at the moment, there are many experts that are concerned about this topic. If you are interested to hear what two of them think about this problem, you should definitely check out the interview that will be held this Friday.