Economists, including myself, have a fondness for rational arguments. We are tempted to do (or prescribe) whatever we derive from our crystal-clear principles on how reality works, or at least how it should be working. That’s why economic theorists sometimes approach the natural complexity of things as a pesky problem – or simply neglect it. Though I don’t remember the exact quotation, I think it was American Nobel laureate Robert Lucas who said a good economic model should be simple enough to be written on a napkin. However, I strongly believe that when it comes down to the lives of real people, sheer logic isn’t always the most fruitful approach.
That’s why I take rational arguments against the euro with a grain of salt. Anti-euro diatribes are becoming increasingly fashionable these days. Distinguished economists argue that global market players consider Europe’s most-advanced marketplaces risky because they lack currencies of their own, while columnists say the euro has failed to fulfill its creators’ expectations. These arguments contain a disturbing degree of truth. For example, it is true that the euro has imposed grave inflexibilities on Europe’s economies, and the costs are vast.
But did the people who established the common currency not foresee this? If not, why have they poured vast amounts of money into structural and cohesion funds in recent years?
There has to be a reason for the euro beyond merely political ones. Euro enthusiasts argue that the euro is not principally a tool of economic policy, but a symbol of European integration – a new European currency for Europe’s new citizenry. Since the rationale for the common currency is purely political, economic arguments against it are futile, they say.
But economists don’t like to sweep rational arguments off the table by stating that an issue is politically motivated. What is good must be taken into account on a case-by-case basis. The baseline equation needs to be amended with new coefficients.
We should think of the euro as an apartment with different roommates. When times are bad, the inhabitants tend to forget the advantages of having a common place to live. Yet the fact that epidemics spread faster in large cities doesn’t encourage masses of people to rush to the countryside. They prefer proper public healthcare, which can only be achieved through joint cooperation. They prefer to stay where they belong – that is, together.
The project of unifying Europe was a political decision that can be priced economically. Axing barriers to trade paves the way for peace and prosperity, while tightening political ties between member states ensures that those nasty barriers won’t grow back again. Costs fall and prices are kept low. Small nations find shelter and a stabilizing anchor in the common market (as Montenegrins did back in the 1990s when we introduced the Deutsche mark). Europeans are experiencing a tremendous, previously unknown sense of liberty because their currency is accepted all over the entire continent. This experience itself contributes to their wellbeing.
At the same time, euro helps us better realize the reforms we need to improve our competitiveness. These decisions are not easy, but inevitable. Economic experts agree that the euro helped Montenegro achieve stabilityand low inflation, and the country has become more attractive and safer for foreign investment. I completely agree with Zdeněk Sychrawho , a European studies expert at Masaryk University who said, “ The fact that we use the euro doesn’t mean that we will not have to fulfil all the requirements to enter the euro zone”.
The benefits become even more conspicuous when we consider the fact that there has been no armed conflict upon European soil for the last decades – except for the one that all of us regret so deeply. A common economic purpose reduces the chance of conflict – and the tighter we knit Europe’s economic fabric, the less likely conflicts are to occur. The common currency embodies the process of unifying of Europe’s economies. Abolish the symbol, and the rest will evaporate sooner or later.
This is the true opportunity cost of the billions that have been spent on rescuing the common currency. It is harder to measure, yet it undoubtedly exists.