The Euro as Social Bond
The euro, which arrived on the streets of Europe on January 1, 2002, recently celebrated its 15th anniversary. The currency’s longevity is probably a surprise to the many observers who have predicted its demise. Yet most citizens of the eurozone—in both the creditor countries of the north and the debtor countries of the south—favor maintaining the euro over returning to their former national currencies.
Given the euro’s recent difficulties, what explains the overwhelming public support for it? The standard answer is that people do not want to abandon the euro because they fear the costs and uncertainties of reverting to the currencies used before its introduction. This explanation holds up, but it also overlooks the positive reasons for the euro’s popularity: the single currency has brought its users material benefits and helped to create a common European identity. Europeans do not back the euro simply because they fear the alternatives, but because the status quo offers them real rewards.
Observers outside the eurozone have long had a dark view of the euro’s prospects. Five years ago, in January 2012, the American economist Martin Feldstein—who argued in 1997 that the single currency would bring conflict to Europe—wrote in Foreign Affairs that “the euro should now be recognized as an experiment that failed.” A few months later, Paul Krugman wrote that the euro could fall apart “in a matter of months.” The list of prominent scholars who have either predicted or called for the breakup of the eurozone has lengthened since then. In 2016, Mervyn King, the former governor of the Bank of England, argued that “leaving the euro area may be the only way to plot a route back to economic growth,” and Joseph Stiglitz claimed that “Europe may have to abandon the euro to save … the European project.” Such gloomy views are not only held by leading economists: they are shared by many scholars of EU politics, such as Andrew Moravcsik, who similarly believe that the euro has divided the continent and brought economic stagnation and high unemployment to the southern eurozone.