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Workers maintain the huge Euro logo next to the headquarters of the European Central Bank in Frankfurt, Dec. 6, 2011. (RALPH ORLOWSKI/RALPH ORLOWSKI/REUTERS)
Workers maintain the huge Euro logo next to the headquarters of the European Central Bank in Frankfurt, Dec. 6, 2011. (RALPH ORLOWSKI/RALPH ORLOWSKI/REUTERS)

Ten years after the euro's launch: How could it have gone so wrong? Add to ...

Since 1974, the EU has asked citizens twice a year whether they think their country’s EU membership is “a good thing”. The percentage of people agreeing with that slipped from 63 per cent in 1975 to 50 per cent in 1981, the year Mr. Mitterrand was elected French president.

From 1981, positive feeling about European integration rose non-stop for a decade, to hit an all-time high of 71 per cent in 1991, the year before the Maastricht Treaty was signed.

But in 60 years of European construction, the eighties and early nineties were the exception to a general climate of reluctant stop-and-go integration.

After Maastricht, pro-European feeling fell off a cliff, with the number of people considering their countries’ EU membership a good thing falling to an all-time low of 46 per cent in the spring of 1997.

The launch of the euro as an accounting currency in 1999 and the arrival of the euro notes and coins in 2002 restored good feeling for a few years. But the rejection of the European Constitution in French and Dutch referendums in 2005 showed the tide had turned again.

Pro-European feeling slid from 59 per cent in a Continent-wide poll in autumn 2004 to 50 per cent in autumn 2005 and to 47 per cent in spring 2011. It will likely hit a new all-time low in the next wave of measurement, according to an official involved with the poll.

BRIDGE OF DISCORD

With a flawed single currency, an emasculated EU Commission, and an increasingly euroskeptic public, the euro zone would have hit a bump sooner or later.

But there was one euro side-effect that magnified all the other problems.

Besides being a medium of exchange, an accounting unit and a store of value, a currency is also a feedback mechanism for economic policy.

If a country’s policies are lax, and spending and wages are out of control, then its currency weakens and its interest rates rise, forcing the government to correct course with a devaluation or austerity programs. With one currency for many states, devaluation is no longer an option.

The introduction of the euro brought a stable exchange rate, low interest rates and a flow of money to southern European countries that for decades had used devaluation as their main policy adjustment factor.

This caused speculative bubbles in real estate and banking, pushed up wages to uncompetitive levels, and led to a build-up of debt that in 2010 began to collapse.

One of the few founding fathers to have clearly articulated the euro’s flaws was Otmar Issing, the German former European Central Bank chief economist and board member. In a 1996 paper, he warned that inherent in the currency was the potential for requiring transfers of cash from wealthier states to poorer ones. That could spark political tensions, he warned. “There is no example in history of a lasting monetary union that was not linked to a state entity,” Mr. Issing wrote.

Fifteen years later he recalls that the warning signals appeared very early in the euro’s life - divergences in labour costs among euro members, the violation of the budget-deficit cap. “What I didn’t foresee was the dimension of the crisis,” he told Reuters.

Another thing few forecast was the degree of discord the euro-zone crisis would engender: the EU flag being burnt in Athens, Greek street theatre portraying German leaders as Nazis, and a French socialist politician comparing Angela Merkel to Otto von Bismarck, who unified Germany by waging war on France.

In this climate, Europe’s far-right parties have flourished, and few more than France’s Front National, led by Marine Le Pen. She is running for president in the 2012 election on a pledge to take France out of the euro.

With an acute sense of history, Le Pen organized a little ceremony at the river Seine. On Sept. 6 this year, Ms. Le Pen and activists of her party threw fake 500 euro notes off the Pont de la Concorde, which connects Place de la Concorde, site of the guillotine used for public executions during the French Revolution, to the French parliament.

“I will put an immediate end to all bailouts of countries that have fallen victim to the euro,” said Ms. Le Pen in front of a wall of cameras. “It is time for France to rediscover its national interest.”

In the months ahead, as today’s leaders hammer out a new treaty for deeper integration, they will have the voices of their predecessors ringing in their ears.

“The call for a more federal Europe has never been stronger than today, not out of conviction, but out of necessity,” said Mr. Verhofstadt, the fomer Belgian prime minister. “I hope we make the jump. If we dither, we’ll end up in the ravine.”

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