Rise and decline of the Eurozone

The long journey from Schuman to the coronavirus pandemic crisis.

Seventy years ago - it was the spring of 1950 - when Robert Schuman, foreign affairs minister of France, announced the project of a new Europe. The first step was the building of the European Coal and Steel Community (ECSC) that took shape in 1951, beginning the path that would lead to the European Union and the eurozone as we know them today - a path that was not always easy to navigate but nonetheless unstoppable. It was no coincidence that Schuman was the protagonist of a radical change in European history.

His personal story could not have been so extraordinarily intertwined between two contiguous and conflicting worlds, as had been France and Germany. He was born to a French father and a Luxembourgian mother. He attended the best German universities of the time in Berlin, Munich, Bonn, and Strasbourg. He had begun his career as a young lawyer in Metz in Lorraine, a region that had been for many centuries part of France before the German Reich occupied Alsace-Lorraine after the Franco-Prussian war of 1870-1871.

The building of the new Europe - from Schuman to Monnet.
Schuman, who was born in a region with a long French history, but largely German-speaking - could have continued his legal profession, and assumed an important political role in the German Reich. But his story took a decisive turn. Schuman lived in the German cultural and political context until the end of the First World War when he was more than thirty years old. Once the war was finished, Alsace - Loraine became once again a French region, and Schuman began a new political carrier as a French politician.

About twenty-five years later, after the liberation of France from Nazism, he was elected to the French parliament, and for a short time Prime minister. But his fame is linked to the promotion in the spring of 1950 of the ECSC - the first step towards the future European Economic Community. The main objective was the inauguration of a new relationship between France and Germany. A goal consistent with his past experience of dual citizenship, first German and then French. The new Community included in addition to France and Germany, Italy, Belgium, The Netherlands, and Luxembourg. A success for Schuman, and for France the first step towards the new configuration of post-war Europe. In the course of this process, Schuman had at his side an exceptional protagonist, Jean Monnet. And it is worthwhile to briefly dwell on this figure.

Jean Monnet had been in charge of the national economic plan in postwar France. He had vast international experience. After the First World War, he was part of the League of Nations. After being in the US, he traveled to a large number of countries struggling with economic processes. When he returned to the US in 1940, he was already enjoying a large prestige. Being in the US, he had been interlocutor of Roosevelt and Churchill in the phases that lead to the Atlantic Charter in 1941.

This experience in the United States left its mark on him. It was 1943, with the war still going on; when Monnet began to outline the project of European unification that in the future would lead to the United States of Europe.
So for Monnet, who Schuman had appointed president of the new institution, the ECSC, which was the first step towards a more ambitious project. But in 1953 his first attempt was rejected by the French Parliament, Monnet resigned from the presidency, and in 1955 promoted the Action Committee for the United States of Europe with the aim of giving new impetus to the project of European unification.

In the summer of 1957, the first historic step was taken with the inauguration of the European Economic Community, of which Schuman and Monnet were rightly considered the main architects. As said, Italy, then under the leadership of De Gasperi, together with France, Germany, The Netherlands, Belgium and Luxembourg became the six members of the new European Economic Community.
The French troubled years
The passage to the European Economic Community was not an easy and obvious one. Between 1950, when the project took shape with the Schuman initiative promoting the birth of ECSC, and 1957 when the European Economic Community took shape, France went through the most difficult phase of its post-war history. Governments fell like pins with an average lifespan of a few months, rarely reaching a year in government. France was struggling first with the war in Indochina and then with the beginning of the Algerian war of Independence.

It is not difficult to imagine France torn apart by the political fragmentation of disastrous colonial wars that were destined to be lost. It was no coincidence that the Fourth Republic fell after a short life of about a decade. The irony of history was that while Monnet cultivated the idea of a future that transcended individual nation-states, France - the most typical of nation-states - was going through a phase of acute crisis. There were no more governments to take charge.
The Fourth Republic produced them in abundance and destroyed them in a few months. The war in Algeria became irresolvable. The military blamed the Paris government of ineptitude. Massu, the general who led the French army, threatened to march on Paris and install a military government.

Charles de Gaulle and the Fifth Republic
The head of yet a new government, Pierre Pflimlin, resigned and France called on Charles de Gaulle. The general, after being head of the provisional government between 1944 and 1996, had lived on the sidelines, although the head of the Rassemblement du Peuple Français (RPF). Now, in the midst of France's worst postwar political crisis, he has been called upon to quell the army uprising and open a new perspective for the nation.

He had to rely on his charisma. In an inaugural address, he promised that he would take on the task of resolving the Algeria conflict. He didn’t say how, probably because he didn’t know, but the commitment appeared reassuring in its own way. Indeed, it turned out to be a tall order. It would take still some years before Ben Bella, the leader of the Algerian insurrection, was released from a French prison, and in 1962 returned triumphantly to Algiers. Beyond the Algerian tragedy, De Gaulle had in mind a plan concerning the role of France in Europe, and of Europe in the world. Europe had to get away from the imperial role assumed by the United States after the end of the second worldwide war.

On the other side, Germany was no longer that of Schuman's time. While France was engaged in colonial wars, Germany had been and was a country with strong economic growth. If France had to play a primary role in Europe, it could not ignore the need for a new phase of the relationship with Germany. It is within this framework of the strategy for the future of Europe that, a few months after taking office as head of the government, in September 1958, De Gaulle invited Adenauer for a meeting in France. It is not the first time that the Chancellor has traveled to France. But this time it would be different. De Gaulle meets the chancellor not to the official seat of government in Paris, but to his private residence in Colombey les Deux Églises.

The meeting opened a new phase in European history. Both were aware of a turning point in the relations between France and Germany. For de Gaulle, the Franco-German partnership was destined to change the profile of Europe by strengthening it economically and assigning it a role of autonomy and counterweight to the US hegemony.

But this design of “grandeur” did not assume the liquidation of the nation-states, but their full cooperation that promised a united continent policy to resist the American challenge.  Adenauer saw in it a definitive historical passage that could erase the traces of conflicts and mistrust, which underscored the relations between the two countries. So the Colombey meeting marks a passage in the history of the community that would be confirmed in 1963 with the Élysée Treaty. A passage that characterized the decade of de Gaulle and the position of France in the European Community.

The birth of the euro
Post-Gaullist France had to deal with the economic crisis that swept Europe after Nixon's liquidation of the dollar-based monetary system. The process of European unification, albeit with different accents, had to front the economic crisis. When François Mitterrand arrived at the Elysée at the beginning of the eighties, France was in trouble, while Germany had successfully dealt with the monetary crisis by holding the mark as a strong currency.

After Mitterrand's failed attempt to revive growth in France, and faced with the risk of a deepening of the gap between the franc and the mark, Mitterrand and Delors, minister of finance, promoted a new fundamental step in the European policy – a radical change that would lead at the end of the decade, to the proposal of a common currency elaborated by the special committee led by Delors.

But, within a few weeks, something happened that radically changed the scenario of post-war Europe. Gorbachev decided to leave East Germany paving the way for a new phase in the history of Germany and Europe. The balance within the continent has changed profoundly. For Germany, relocated to the center of Europe, a new chapter in national history was opening. It was a reversal of post-war history. As the English historian Eric Hobsbawm wrote in his famous essay "The short century", with the end of the USSR, also the twentieth century ended.

Mitterrand could not contain his disappointment. On the contrary, for Helmut Kohl, history was opening the door to a new future for Germany and Europe, sweeping away the dross of the past. And the doors of the future had to be opened wide without interposing obstacles and procrastination. Kohl made a simple and indisputable move for his purposes: he announced, even before the dust of the fall of the Berlin Wall was settled, the unification of Germany.

Political geography was changing along with the closing of a long and dramatic chapter in European history. Kohl was aware of this and had no intention of sacrificing his friendship with France on the altar of the new Germany. He grasped the problem that was opening up for France, no longer a power at the origin of the European Union. Suddenly, with the liberation of the countries of Central and Eastern Europe, France was placed at the edge of the new continental configuration.

For Kohl, there was no doubt. Mitterrand was to be offered the only possible solution: an accelerated transition to the single currency. German unification was worth the sacrifice of the glorious old Mark.
It was like a wedding that had to be celebrated as soon as possible in order not to leave room for any difficulties raised by families or, in this case, by one of the two. It was no secret, in fact, that in Germany the immediate unification of the country seemed risky and wrong after decades of separation during which economic and social models had followed profoundly different paths.

If doubts arose in Germany from politicians and intellectuals, for Kohl the process was unstoppable. The acceleration of monetary unification was essential to obtain the consensus of France in the process of unification of Germany.

The century of the crisis
The decade ended with the eurozone growing. But the scenario in a few months changed radically. The American economy entered a long period of stagnation, holding back growth at a global level. At the same time, Gerard Schroeder, the new German chancellor who had succeeded Kohl initiated an internal containment process that caused a phase of recession and stagnation in the eurozone that had been just formed. In these cases, the combination of monetary and fiscal maneuvers became a key tool.

As a consequence, the condition of the countries suffering from the fall in growth and unemployment is worsening. But the transition to the single currency obviously prevented either a monetary maneuver or a devaluation in the countries hit by the economic downturn. And the fiscal policy was linked to the Maastricht parameters fixed in the previous decade. In other words, the new eurozone couldn’t adopt the policies that was implemented by Greenspan in the US with the lowering of interest rates close to zero, expansionary fiscal policy and the devaluation of the dollar.

In the eurozone economic policy aimed at supporting growth and employment has no place. Schroeder's deflationary policy aimed at restoring the German budget imbalance, due to the expenses to support the reunification, hits the Eurozone in its nascent state. Thus the new decade of the eurozone began under less than ideal conditions. We know that the euro economy was heading towards a comforting recovery in the middle of the decade. But it was a comfort that didn’t last long. Between 2008 and 2009, the eurozone was also hit by the crisis. All eurozone countries, including Germany, have felt the collapse in growth and the huge rise in unemployment. However, in the midst of the crisis which, due to its severity, was confronted with that of the early 1930s, the objective of economic policy became the recovery of growth and the fight against mass unemployment. This attempt was made with some success between 2010 and early 2011.

According to Mario Draghi's diagnosis in his last report as governor of the Bank of Italy at the end of May 2011, Italy had suffered unavoidable, but not unaffordable damages during the crisis. But in a matter of weeks, the picture is reversed under the decisions taken by the European Central Bank. Jean-Claude Trichet, President of the ECB, backed by Germany, adopts a deflationary monetary policy formally aimed at reducing the deficit and public debt burdening the countries of the Eurozone. It is just the way to deepen the economic difficulties of some eurozone countries: Spain, Portugal, Greece and, after the attack of the financial markets, of Italy.

A dismal decade
We are at the beginning of the new decade that is not the subject of this article. However, a decade on whose development and the conclusion we cannot have doubts. The eurozone recorded the lowest growth of all economically advanced countries. It recorded on average the highest level of unemployment among the advanced economies, and a sharp worsening of poverty, especially in the Mediterranean countries, including Italy and Spain. Between 2018 and 2019 we witnessed a recession even in Germany, which remains the world's fourth-largest economy.

There may be different views on the twenty years of the euro area. But the gap between the promises that accompanied its birth and the actual outcome cannot be overshadowed by controversial opinions. All possible statistics unequivocally attest to the disappointing levels of growth over the last decade and the highest average unemployment level in the developed world. It is in this context that the coronavirus pandemic has hit Europe and, in particular, the euro countries, worsening their already gloomy economic perspectives.

According to the current forecasts of the international organizations, such as the European Union and the IMF, the return to the previous economic standards will take some years. Italy will come back to the pre-crisis GDP around 2023. It means a level of five points lower than the GDP of 2007 and equal to that of the beginning of the millennium. Almost a quarter-century lost from an economic point of view.

And what is still more relevant, with a sharp deterioration in social conditions: indeed, the richest ten percent of the population has become richer, as it is witnessed by the concentration of savings in the banks that have increased also in the course of the crisis. On the other side, the number of families in the condition of poverty has dramatically increased. This is not a particular hardship condition of a country. Spain, which before the crisis at the end of the first decade recorded a public debt the lowest among the large eurozone countries around 40 percent of the GDP, will close 2020 with a debt of 120 percent, according to current forecasts. And, surprisingly, France will suffer a slightly higher debt ratio than Spain.

The gloomy level of growth has, indeed, affected all the major eurozone countries in different ways. And it is surprising that the powerful Germany has also been subject to recession during the last two years, before being hit by the pandemic virus. History can be controversial. It’s, however, difficult to have doubts about the failure of the eurozone twenty years after its birth. It is always a hazard trying to predict the future. We cannot ignore the disappointing results of the euro area's first 20 years. Yet the evidence of the severity of the crisis emphasized by the mass pandemic affecting all eurozone countries, could (should) force a radical change in the old wrong policies.

Antonio Lettieri

Editor of Insight and President of CISS - Center for International Social Studies (Roma). He was National Secretary of CGIL; Member of ILO Governing Body,and Advisor of Labor Minister for European Affairs.(a.lettieri@insightweb.it)

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