This article was written by Fred Piechoczek.
History and economics are not sciences, working as both disciplines do from social and political perspectives that determine their analyses and outcomes. An alien visiting Planet Earth in 1975 would probably conclude that the Axis powers of Germany and Japan won World War II; your average bacterium would not notice that China is the most populous country; the existence of black holes changes cosmological theory as does anti-matter (even if by definition it does not exist). The point is that if you alter the social perspectives underlying a particular view of history or economics things can look very different, whereas the strictures of science are tighter.
With that background, are there any ‘scientific’ tests that can be applied to the conventional wisdom that the Euro is a failed currency? Mathematics is a science, so the application of a simple mathematical test may help prove conventional wisdom on the Euro and lay to rest any further argument about the value of permitting the Euro to persist.
Take the comparison of the Euro and the British Pound. The Euro launched in 1999. Give it a few months to settle in the markets and take the average Euro/GBP rate for 2000 of 1.64. Compare this Euro/GBP rate of 1.64 to the 2015 average Euro/GBP rate of 1.37 (the rate is less now at 1.18, but using 2015 takes out the Brexit effect). This establishes that for each £1million of value on the sale of your house, you would have received twenty percent more Euros in 2000 for your British Pounds than last year. The British Pound has weakened considerably against the Euro since its launch.
By this simple mathematical test, it is the British Pound that is the failed currency in comparison to the Euro. Of course, you might argue that the asset value of your house in 2015 is higher than if the UK had joined the Euro, but this is an opinion, not a scientific test, and you could hold the opposite opinion. That is the flexible thing about opinions: they can be whatever you like. They are the building block of democracy, as it is opinions that underlie the vote. This gives democracy versatility, similar some would say, to statistics (and by inference economics).
Let us consider one of the major reasons why the Euro is said to have failure written into its genes. The argument is that disparate economies with differences in structure, tax and so on cannot be constricted by the straitjacket of one currency. Is this straightjacket conjecture true? There are many different facets within any developed modern economy, and it is the commonality of currency that allows these different activities to co-exist and trade to happen. Money provides a common standard for transactions of widely differing natures and values and permits exchange and trade between different economic sectors and regions. We live in a global economy from a trade perspective, such that structural differences work their way through to exchange rates eventually.
Maybe the straightjacket conjecture is not true. The island of Malta exists within the Eurozone. The Isle of Dogs (which includes the Canary Wharf financial centre) and the Isle of Wight co-exist with the British Pound as their currency. Malta is a financial centre like the Isle of Dogs. Malta is a yachting centre like the Isle of Wight. Malta is more like the Isle of Dogs than the Isle of Wight is like the Isle of Dogs, and the Isle of Wight is more like Malta than it is like the Isle of Dogs, so Malta lies on the scale between the Isle of Dogs and the Isle of Wight. It is, however, the Isle of Dogs and the Isle of Wight that have the same currency. We have yet to hear of the Isle of Wight’s economic collapse by reason of its currency affiliation.
The myth that has been created is that the Greek economy cannot work within the Eurozone. This implies that the Greek economy can work well outside the Eurozone. Rather than examining the history of the Greek Drachma, let us ask the question of whether the Greeks really prefer the German lifestyle, anyway.
Disclaimer: this article does not reflect the views of its author.