Beside of all its synergy, reduction in exchange costs and worldwide prestige there are reasons for which euro skeptics deny the introduction of the Euro, or frankly saying its substitution with their local currencies. They argue the loss of national sovereignty through the centralization of monetary control, the alienation of governments from exchange rate benefits, the mono-objective program of the ECB, the costs of common monetary policy and other defaults that Maastricht Plan is imposing.
For centuries, the currencies of European economies meant more than exchange tools. Their forms, sizes and colors were symbolizing nationalities of their origin and their holders trusted in the words their issuers for its worth against the gold and other currencies. Since their initial usages, the paper banknotes have gained symbolic values together with their monetary worth. Nationalist policies of the politicians have been joined to the currencies. The figures of the national leaders, monuments, and victories were put on the currencies as sources of nationalism. Therefore giving up national currencies and introduction of a new and international one was hard to welcome from this nationalist point of view.
On the other hand, the money printing and the control on its worth are also estranged from national governments. Other than historical usage and emotions, the fluctuation of the exchange rates is an economic maneuver that Euro countries are not free as they used to be before the EMU. The value of the Euro, interest rates and the money supply is determined by the ECB, which is above of all national institutions and free from their control. We will observe the ECB, but we should now focus very briefly on the loss of the exchange rate policies.
Without the exchange rate policy making, economies lost their devaluation and interest rate tools that were securing their competitiveness in the international market. Deciding on the value of their currency, they had an extensive sovereignty on their agents’ purchasing and selling capacity. With the Euro system, even though they need the devaluation of the Euro to compete with other regional giants of the world, many European economies faces the burden that the ECB do not compensate.
In terms of the alienated sovereignty, the ECB is the most important novelty that EMU introduced. Nevertheless, the ECB has more to analyze, such as its independence, its bureaucracy, its unique purpose of price stability.
The ECB, which is an assembly of national central banks in an independent and supranational form, has been located in
the financial capital of .
It is independent from governments’ control and trustful in terms its loyalty
to its constitution. It is governed by appointed bureaucrats and an executive
committee and is closely connected to Germany .
The rule of the entire European monetary economy by a group of non-elected
bureaucrats intensifies the dose of euro-skepticism (Giordano, 1998; 71-72).
Especially when we think on the current world economy and the role of the
financial measure on our welfare, the reduced role for elected politicians is a
paradox that European democracies are suffering. The lack of public responsiveness
and accountability make democrats more sensitive and reactionary against the
On the other hand, in the constitution of the ECB, the main concern of the institution is stated as the protection of the price stability. Out of this overriding objective, other issues can be followed but they are doomed to remain secondary. Through the non-inflation figures, the ECB determined its target as a tolerated inflation in the range of 0-2 % (Giordano, 1998; 69). It is a fact that a responsible central bank in an economy must be sensible also for other issues such as economic growth, employment and balance of payments. Yet the ECB lacks or postpone such concerns.
For all monetary unions the main problem is the determination of the Optimum Currency Area (OCA), it is because the non-accordance among members of the union can cause the disharmonies in the policy determination. As a consequence, there would be lower potential of Pareto superior conditions. This is true not only for international monetary unions but also for national unities. Economic agents can be located in different parts of the business cycle, to mean in shrinking, expanding, or stagnant slopes. Then, the appropriate interest rate, money supply and fiscal political choices alter for those agents to cold or to heat the overall economy.
In the EMU barriers, according to the Maastricht Criteria, the monetary tools for balancing the economies are estranged from national institutions. The only option that remains for them is to play with their fiscal tools, but this option is too limited with the criteria as the budget deficit and total debts of governments are limited with strict points.
The disharmony in the business cycle is something that European economies are currently suffering. To illustrate with an example, in the early days of the EMU, the Scottish and German economy were in quite opposite directions. The Scottish economy was over-heated due to a high growth in a very short term. The economy must be calmed down and the conventional tools for this purpose are increasing the interest rates, reducing the money supply in the market or fiscally increasing taxes, reducing government expenditures and reducing subsidies. Among these, monetary tools were estranged and only via fiscal tools the management of the Scottish economy can calm down the economy. On the other side, the German economy was suffering from non-cyclical recession that is articulated mostly after the re-unification costs and increased welfare burdens over the government spending. The unemployment reached intolerable levels and the economy was shrinking due to competitive disadvantages. The solution was the practice of the right opposite tools that we listed for the Scottish economy. Out of monetary tools, the fiscal measures that
apply were blocked with Maastricht Criteria. The fiscal discipline cannot be
ceased; the government spending, debt levels and subsidies were all limited
with existing criteria. After all, the policy making of the ECB was crucial for
both economies and their incompatible demands would be dissatisfied.
Furthermore, as we have seen hitherto the EMU system is crisis prone; there
remains something to do when economy is expanding but whenever a recession
occurs, EMU is not immune to revitalize the needy economy. Germany
These points are not the entire threats of the Maastricht Treaty and EMU is composing. The sanctions that treaty offers are in forms of monetary penalties, in other words, a poor performance economy is punished with a bill when it is in recession that would make it even worse. The disciplinary aspect of the union is hardly to be defended to be rational in this respect.
We analyzed the costs of the Euro and we mentioned about the loss of national sovereignty on monetary and then fiscal measures of the member economies; the business cycle problems that endanger the harmony of the member economies. These all threats can never be thought without the general framework of the world economy on the one hand, and the main political concerns of the EU, on the other.
In the existing world economic paradigms, without any monetary integration, there is still reduced sovereignty on the monetary issues as foreigners in quite open economies mostly determine the value of a national currency. The money inflows and outflows determine the welfare of a country rather than elected politicians. Furthermore, due to complex interdependency in the world economy, regional crisis, such as the East-Asian, Latin and Russian crisis of the last decade, affect the entire world economy. The sovereignty and determinacy by the elected politicians is an obsolete issue. The parities of the currencies are determined not on the political round tables, but on the PC monitors of the individual economic agents. Therefore such criticisms targeting the overall sovereignty issues and the centralized monetary control are nothing but nostalgic exaggerations.
On the other hand, in terms of business cycles that member economies will suffer from common policy making by a highly centralized central bank, or disabling governments to operate in their economic zone are not a relevant criticism. It is a fact that the EMU system and the Euro should not be considered apart from political concerns. The political gains from such unionization are not our subject but it should be considered that such motivations are prone to encourage politicians to suffer these risks.
Moreover, again for this issue, is that all such disciplinary measures and sanctions are expected to limit the populist expenditures that democracies suffer as well as the efficiency concerns that European politicians are now aware. There are harder rules for the new game, and fortunately the players are keen to play it at any cost, if there really exist any.