Delphi’s Espen Furnes asks whether it is ‘goodbye euro?
Espen Furnes, manager of the Norway-based Delphi Europa equity fund, says it is not surprising that nobody bothered to celebrate the latest anniversary of the euro at the turn of the year. That would have been too provocative.
Maybe not that many people thought about it, but at the end of last year it was 10 years since the euro was introduced. Naturally, in light of the ongoing national debt problems, this anniversary was not celebrated – at least not on a large scale. That would have provoked many people.
Currently many people regard the euro as an economic monster that should be put down as quickly as possible. There is great distrust in the entire euro project and it is not difficult to see how hopeless the entire EU structure may be. A well-meant but failed political project – destroyed by useless control structures, elaborate processes for reaching political agreement and a failure to understand reality. Are things really that bad? The brief answer is no.
Far better than rumoured
Despite what may be the general opinion today, both the EU and Euro have actually functioned well – both politically and economically. The great political vision was to gather Europe’s nations in a community in order to prevent national conflicts from leading to war. Since the Treaty of Rome was signed just after the Second World War, there have not been any major political conflicts in the EU. The common market has also been a success and it is now much easier and cheaper for the various EU countries to export to each other.
The idea of a common labour market has also functioned well. This became especially clear once the EU expanded eastwards. East European workers have not only made up a considerable percentage of the workforce in Norway but have also been a major contributor to growth and not least flexibility in the UK, Germany and Spain.
A simpler business life, but…
Everyday business life has also become easier because of the euro. For example, 60% of Germany’s exports are intended for other EU countries, most of them also countries that have the euro as their currency. Easier trading, less bureaucracy and a lower exchange-rate risk have helped to make it easier and cheaper to run a business in Europe. In that sense, the euro has also been a successful project.
Nevertheless, the euro is facing considerable challenges. Many of the fundamental ideas on which it is based have proven to be correct, but the euro’s control structure has over time been bureaucratic, detailed, complicated and unable to act.
A currency is primarily controlled by two tools: monetary policy and fiscal policy. The monetary policy controls the interest rate and the monetary amount available at any time. The fiscal policy controls the state’s activities and the intervention in a country’s economy. In the EU, the monetary policy has been strictly managed and the European Central Bank (ECB) has upheld the German Bundesbank’s very restrictive monetary policy in order to prevent inflation. Even in these times of crisis, the ECB is very restrictive about increasing the volume of money, despite being under increasing pressure to do so.