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FINANCE

Brüderle rejects French eurozone ideas

German Economy Minister Rainer Brüderle has rejected proposals by French Finance Minister Christine Lagarde for eurozone economic governance.

Brüderle rejects French eurozone ideas
Finance Minister Christine Lagarde, Economy Minister Rainer Brüderle, Photo: DPA

“This kind of European economic government is not a good plan,” Brüderle said in a statement released late Thursday. “Those who are now leaning towards a European economic government are working on the wrong project.”

The comments came after Lagarde floated ideas for more closely coordinated policies in an interview with the Süddeutsche Zeitung newspaper. “An economic government means seeking the approval of other states” before taking action, Lagarde was quoted as saying.

The same newspaper reported that several European countries, including Germany, are working on a permanent euro rescue mechanism that would include the creation of a new and independent funding institution.

Germany is considering a “European Stability and Growth Investment Fund,” according to a government paper seen by the Süddeutsche.

The mooted body would exist side-by-side with the European Central Bank, would benefit from the same independence and would be tasked with helping financially distressed eurozone countries under strict conditions.

The German finance ministry acknowledged that a plan had been worked on by its staff but was “in no way the official position of the finance ministry or federal government,” it said in a statement.

Meanwhile German Finance Minister Wolfgang Schäuble, who belongs with Brüderle to the centre-right coalition government but occasionally clashes with his colleague on policy, left the door open to enhanced forms of common governance under strict conditions at an undetermined point in the future.

Schäuble had been expected to meet Lagarde in the eastern French city of Strasbourg on Thursday, but the talks were cancelled because of bad weather and difficult transportation conditions, a French finance ministry source said.

At the last European Council summit this month, governments agreed to establish the framework for a future permanent eurozone rescue fund by March, to ensure the euro’s long-term stability.

The Süddeutsche Zeitung said governments which needed to borrow from the mooted fund would have to put up solid collateral such as gold reserves or private bonds.

The document said such a fund would have an “unlimited capacity for refinancing” and would be proposed to finance ministers in mid-January. In addition to Germany, Finland, France, Ireland and the Netherlands are working on proposals.

The EU set up a one-trillion-dollar rescue fund earlier this year with the help of the International Monetary Fund in the fallout from the Greek debt crisis but it will expire in 2013.

AFP/bk

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EUROPEAN UNION

The Euro celebrates its 20th anniversary

The euro on Saturday marked 20 years since people began to use the single European currency, overcoming initial doubts, price concerns and a debt crisis to spread across the region.

The Euro celebrates its 20th anniversary
The Euro is projected onto the walls of the European Central Bank in Brussels. Photo: Daniel Rolund/AFP

European Commission chief Ursula von der Leyen called the euro “a true symbol for the strength of Europe” while European Central Bank President Christine Lagarde described it as “a beacon of stability and solidity around the world”.

Euro banknotes and coins came into circulation in 12 countries on January 1, 2002, greeted by a mix of enthusiasm and scepticism from citizens who had to trade in their Deutsche marks, French francs, pesetas and liras.

The euro is now used by 340 million people in 19 nations, from Ireland to Germany to Slovakia. Bulgaria, Croatia and Romania are next in line to join the eurozone — though people are divided over the benefits of abandoning their national currencies.

European Council President Charles Michel argued it was necessary to leverage the euro to back up the EU’s goals of fighting climate change and leading on digital innovation. He added that it was “vital” work on a banking union and a capital markets
union be completed.

The idea of creating the euro first emerged in the 1970s as a way to deepen European integration, make trade simpler between member nations and give the continent a currency to compete with the mighty US dollar.

Officials credit the euro with helping Europe avoid economic catastrophe during the coronavirus pandemic.

“Clearly, Europe and the euro have become inseparable,” Lagarde wrote in a blog post. “For young Europeans… it must be almost impossible to imagine Europe without it.”

In the euro’s initial days, consumers were concerned it caused prices to rise as countries converted to the new currency. Though some products — such as coffee at cafes — slightly increased as businesses rounded up their conversions, official statistics have shown that the euro has brought more stable inflation.

Dearer goods have not increased in price, and even dropped in some cases. Nevertheless, the belief that the euro has made everything more expensive persists.

New look

The red, blue and orange banknotes were designed to look the same everywhere, with illustrations of generic Gothic, Romanesque and Renaissance architecture to ensure no country was represented over the others.

In December, the ECB said the bills were ready for a makeover, announcing a design and consultation process with help from the public. A decision is expected in 2024.

“After 20 years, it’s time to review the look of our banknotes to make them more relatable to Europeans of all ages and backgrounds,” Lagarde said.

Euro banknotes are “here to stay”, she said, although the ECB is also considering creating a digital euro in step with other central banks around the globe.

While the dollar still reigns supreme across the globe, the euro is now the world’s second most-used currency, accounting for 20 percent of global foreign exchange reserves compared to 60 percent for the US greenback.

Von der Leyen, in a video statement, said: “We are the biggest player in the world trade and nearly half of this trade takes place in euros.”

‘Valuable lessons’

The eurozone faced an existential threat a decade ago when it was rocked by a debt crisis that began in Greece and spread to other countries. Greece, Ireland, Portugal, Spain and Cyprus were saved through bailouts in return for austerity measures, and the euro stepped back from the brink.

Members of the Eurogroup of finance ministers said in a joint article they learned “valuable lessons” from that experience that enabled their euro-using nations to swiftly respond to fall-out from the coronavirus pandemic.

As the Covid crisis savaged economies, EU countries rolled out huge stimulus programmes while the ECB deployed a huge bond-buying scheme to keep borrowing costs low.

Yanis Varoufakis, now leader of the DiEM 25 party who resigned as Greek finance minister during the debt crisis, remains a sharp critic of the euro. Varoufakis told the Democracy in Europe Movement 25 website that the euro may seem to make sense in calm periods because borrowing costs are lower and there are no exchange rates.

But retaining a nation’s currency is like “automobile assurance,” he said, as people do not know its value until there is a road accident. In fact, he charged, the euro increases the risk of having an accident.

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