The Euro

The Euro - Unity in Diversity

As a child of Maastrich Treaty, The Euro was created as a Common single currency of the European Union in 1999 and notes and coins started circulating in 2002.  UK and some other countries did not opt to become part of it then.  Even now UK is outside the currency union.  About 23 countries use Euro as their currency. 

Global Financial Crisis of 2007-2008 saw the Euro zone, where Euro is the official currency, enter into recession creating instability due to unbalanced economic developments among countries.  Some countries like Germany and France were stronger economically and some others were facing problems.  The stress of a more severe recession was threatening break-up of the Euro zone.  Easier said, than done.  The resultant catastrophe would have been monumental, had that happened.  The severity would have been worst worldwide  than Great Depression of 1930s.  Greece, Portugal, Ireland, Italy and Spain were the laggards dragging the others down into the crisis.  Defaults of these governments due to their mounting debts were staring the entire union.  As is always, none was prepared to tighten their belt and adopt austerity in their countries because of political compulsions.  The better managed countries were made to work out bailout packages to redeem crisis ridden governments.   Greece had become a test case of how the EU could deal better with the debt crisis emanating from its bulging debts.   In 2010 the Greek Government debt was downgraded to ‘junk’.  Even now Greece has not come out of the woods though it showed some positive developments in between.  It continues to have the debt burden and is on the verge of or already in a debt trap, if not well attended.   Austerity measures imposed were resented by the mass and led to a change in government which won on the promise of no austerity.  Naturally people would not want to reduce their consumption.  But on assuming office the new government in 2015 also learnt it the hard way that it had to agree to the conditions of the European Central Bank (ECB), International Monetary Fund (IMF) and Euro zone countries, dubbed as Troika, for debt relief and other supports to tide over the crisis.  Portugal and Ireland had the same problem of burgeoning debt with looming defaults.  For Spain it was the housing bubble that triggered the crisis with accompanying artificial and unsustainably high GDP growth rate.   The government’s very high expenditure along with hidden losses and misleading information flow in banking and finance sectors compounded the gravity of the situation.

Problems arising out of handling of economy and its monetary policies by Greece continue to haunt regulators of the currency mechanism, vis-a-vis, economic development of Euro zone.   It has to downsize their expenditure, service their debts and also guide their economy to grow by creating a right environment for economic development.   One country’s economic difficulties will trigger flight of capital and it cannot be isolated or insulated enough not to affect the other performing better off countries as they are constituents of European Union and Euro zone where free flow of capital and labour between them is guaranteed.  Flight of capital will only aggravate the crisis.

Euro zone and India both have similarities.  Of course India is a country with a federal structure consisting of about 25 states and union territories, whereas Euro zone consists of about the same number of countries but unified by a single currency.  Here regional imbalances are in states but in Euro zone the regional imbalances occur in separate countries economically.  Both have the problems of pulls from various quarters with their uniqueness.  Both experience pulls and pressures from within and without and find Unity in Diversity.  The fruits of unity outweighs otherwise extreme option in both cases.  That is the reason why even though the thought of exiting euro currency zone is current in Greece it has not happened so far. 

History has instances where unity was not achieved through diversity.  The erstwhile Soviet Union consisted of 15 republics disintegrated at the end of 1991.  Likewise Yugoslavia also disintegrated in 1991-92.  May be, the unity could not be achieved in these cases because of the type of governments they had which could not be called democratic.

But the latest affirmation for Unity in Diversity came in 2014 in the referendum in which Scots decided to remain with United Kingdom. Better wisdom prevailed.