Business news from the Fredericksburg region.
Does Europe miss pre-euro days?
I HAVE A BOX near my desk that’s full of Italian lira notes, French francs and various other bygone European currencies. They’re worthless except as reminders of pre-euro vacations.
I kind of miss the days when American tourists had to do the math, figuring out that their 5,000-lira notes were worth about three bucks or trying to make change in a French café.
I have a feeling a lot of Europeans are missing those days, too.
When Nevada’s unemployment goes deep into double digits or Florida’s housing market becomes a ghost town, the afflicted can look beyond Carson City or Tallahassee for some measure of relief.
Whether some of us like it or not, we’ve got each other’s backs—more or less.
Federal money is used for the common good, with the needy getting more and the less-afflicted getting less.
We are one nation. There’s no doubt that some states are feeling the crush of the Great Recession more than others, but there is a safety net to keep the bottom from falling completely out.
Also, we’ve been playing by the same financial rules, even if some of those rules were watered down and trampled on our merry way to the Great Recession.
In the European Union, it’s not quite like that.
A Newsweek article recently did a good job of explaining how it all goes back to Dec. 8, 1989, and the fall of the Berlin Wall.
The Germans wanted nearly instant reunification after the Iron Curtain was drawn back. Before agreeing to that, the French and others, wary of seeing a nation they had fought twice in the last century made whole again, wanted a common currency, feeling that would dilute German power.
And so, a wide variety of European states began a grand experiment in 1992. (The Newsweek story points out that there were very few instances of nations holding democratic referendums on the euro, especially after it was voted down in Denmark and barely passed in France.)
Countries shared a currency but had few strictures to ensure that they were on something resembling the same page economically. Labor costs varied by nearly 50 percent in some cases, creating huge trade deficits. All bonds, no matter what the individual country had in the bank to back them up, were treated the same by the European Central Bank. Greece and other countries did not appear to be using the same economic playbook as more stable and wealthier states. Debt grew unabated.
More countries were admitted to the EU, and while the overall effect was to bring Europe’s various states closer together and perhaps avoid another world war worse than the last two, it didn’t happen quickly enough to avoid the mess that is unfolding now, threatening to send a tsunami westward across the Atlantic.
Last week, Spain’s risk premium—what borrowers pay to cover perceived risk involved with the loan—was about 6.5 percent. Germany’s risk premium was about 1.4 percent. While the euro is the euro, whether you’re in France or Portugal, it’s quite obvious that, in the real world, Spain’s economy is not Germany’s and is not treated the same by responsible lenders. A country that has to pay a premium to borrow that is nearly 400 percent more than that paid by another country is not going to be competitive, especially since its ruinous risk premium is the result of its economy already sitting somewhere at the bottom of the Mediterranean.
The euro and the European Union were and are noble ideas. If I had a wayback machine, though, I would wish they had worked a little more on the “union” part before they put the euro into play. It is easier to funnel Virginia dollars to Arizona than to get Germany onboard to aid Portugal, partly because it’s built into our system. We grumble, but most of us accept that we are one nation.
The only people who seem to be benefiting from the euro right now are the foreign tourists, who are finding European hotels and restaurants quite affordable.
I wonder if they’ll accept francs and lire.
Business Editor Howard Owen writes this biweekly column on business and the economy. He can be reached at 540/374-5539 or email@example.com.