The euro's survival 'requires political union'

Protester burns a euro note

Creating the currency union was not a random act of collective economic suicide, but was in some senses a rational or even noble project that was either premature or too late. The tragedy was that a succession of post-war leaders, whose intentions would be seen by many as honourable, made a series of disastrously ill-timed decisions.

Here is a great paradox: the big decision to press the button on creating the euro was a French attempt to shackle the economic and political power of a unifying Germany, but it has had the perverse consequence of reinforcing German power within the eurozone and the European Union.

A film on this subject which I've made with the producer John Thynne tries to shed light on the gravity of the mess they (and we) are in now - and what may be required for the eurozone to survive in the longer term.

If you had any doubts that we were minutes away from financial and economic catastrophe before Christmas, the European Central Bank does not.

"In the autumn of 2011, the conditions were very dangerous," one of its executive directors, Benoit Coeure, told me. "European banks were facing severe difficulties to fund themselves, to access finance, and we were very close to having a collapse in the banking system in the euro area, which would have also led to a collapse in the economy and to deflation. And this is something that the ECB could not accept."

Find out more

So the ECB put 800 European banks on life support, by providing more than a trillion euros of emergency three-year loans to them. As Mr Coeure concedes, this so-called LTRO is a temporary prop, not a solution to the euro's ills.

"It is a pain-killer, a very powerful one... This period of calm has to be used by governments to fix the underlying issues, the fiscal (deficit) issues and the competitiveness issues that European countries are facing."

Since I saw Mr Coeure a few weeks ago, the calm has evaporated. There are escalating fears that Greece will leave the euro - and that the ensuing turmoil will force a more serious fracture of the currency union.

Benoit Coeure says the ECB "saved" Eurozone banks

The big indebted economies, Spain and Italy, look considerably weaker, their economies shrinking, and unemployment rising. The borrowing costs of their governments are soaring once more, a sign that investors are growing concerned again about the health of their public finances and of their banks.

What is required is a tremendous collective effort by the eurozone's members. In practice, this is widely seen to need a greater willingness by Germany to deploy more of its fearsome financial resources to help the weaker economies, such as Spain and Italy, in their period of painful transition.

Start Quote

The average lifetime of a currency is limited, except when it is a great state with an endlessly long, beautiful history”

End Quote Helmut Schlesinger

But a sharing of the debt burden requires near revolution in the way the EU is governed, according to a trio of the grand old men of Europe.

"The crisis makes at least one thing obvious and that is we need more of Europe, we need the political union as the only way to save the stability of the euro," the former German chancellor, Gerhard Schroeder, said.

Given that his party, the SPD, could well be in power again next year, we may well see progress towards this political union.

One of the great figures of global central banking, Jean-Claude Trichet - president of the European Central Bank during many of the euro's formative years - made a similar point. "In a single market with a single currency… it seems to me that Europe could go for a federation."

Without such a federation, can the single currency survive, I asked Helmut Schlesinger, another influential central banker who has seen the odd financial crisis at close quarters and was president of the Bundesbank when sterling was forced out of the European Exchange Rate Mechanism in 1992.

"I cannot make any long-term predictions in this regard," he said. "One should consider that monetary unions, or more precisely, coin unions, have survived for a long time, but never for more than three or four decades.

One euro shop in Greece There are fears Greece may ditch the euro

"My personal experience with the German currency is that it has undergone changes at three occasions during my lifetime. When I was born, it was changed into the reichsmark. When I began to work, it became the deutsche mark. And when I became a pensioner, it became the euro.

"The average lifetime of a currency is, as you can see, limited, as a rule, except when it is a great state with an endlessly long, beautiful history, from the kings of the Middle Ages until the Queen nowadays. Then you have got a long monetary history."

But in Europe, that is not the case. "And I would say that either we get the United States of Europe, that is an actual political union, and then that political union gets its own currency. But then it is no monetary union any longer, but the currency of that new state.

Start Quote

We need the political union as the only way to save the stability of the euro”

End Quote Gerhard Schroeder

"Or let's stay with the current situation which we find ourselves in at the moment, and then it could be that this monetary union will not necessarily dissolve, but change, extend, scale down. I do not know. My horizon, my prognosis is very limited in time."

So what is going to happen: creation of the European superstate and survival of the euro, or a disastrous monetary and political disintegration? I hope Thursday's programme will give you the information you need to form a judgement on will determine not just the eurozone's future prosperity but Britain's too.

The Great Euro Crash with Robert Peston is on BBC Two at 21:00 BST on Thursday 17 May. Watch online (UK only) via iPlayer at the above link

Robert Peston Article written by Robert Peston Robert Peston Economics editor

Why no le Pen or Farage at Davos?

How threatened is the Davos elite by the surge in support for new populist and nationalist parties?

Read full article

More on This Story

More from Robert


This entry is now closed for comments

Jump to comments pagination
  • rate this

    Comment number 543.

    Will the financial situation in Europe continue to slowly deteriorate or will it just fall off the edge of a cliff into an abyss? I don't think anyone knows one way or the other. They're all meeting in the US so that Obama can say his fond farewells. For Hollande it will be a brief hello and good-bye when the G8 meetring ends.

  • rate this

    Comment number 542.

    Dear politicians,

    Please call on our strengths, let our failings melt away

    Most across Europe want ALL to be secure, at work, equally empowered, and so at peace, ABLE to give to the world

    No 'false entitlement' to 'top salary'

    No immoral exclusions to 'the unemployment pool'

    Just honest inclusion whether in hi-tech or caring

    The price? Equal Democracy, NO price: liberation of conscience

  • rate this

    Comment number 541.

    and now Frau Merkel has suggested a Greek referendum on continued membership of the Euro - the last Greek prime minister - who was entirely honourable IMHO - was hounded out for suggesting that.

  • rate this

    Comment number 540.

    Why no mention of Iceland's response to debt crisis???

  • rate this

    Comment number 539.

    I enjoyed last nights programme but there was no mention of the enormous benefits in day-to-day life and business that the Euro has brought. Also no mention of the underlying support for the retention of the Euro, even in Greece. Also no mention of those countries quietly getting on with using the Euro like the Baltic states, Finland or even little Montenegro.

  • rate this

    Comment number 538.

    @527. David Pritchard

    Being Greek I would have to agree but only after we've got rid and put through court our corrupt politicians.

    There no point throwing money to these guys because:
    a) they will sort their friends out
    b) this money will never actually help Greek people, any increase in GDP will be nothing but statistical since it will go to the same businessmen it always does.

  • rate this

    Comment number 537.

    I've found, for much of my life, that whenever I try to be serious, people think I'm joking, and vice-versa.

    That's normative groups for you though.

  • rate this

    Comment number 536.

    Suilerua @533

    Where in the world is Abraham LIncoln honoured - to the extent of "understanding and agreed support" of democratic rule "of, for, by The Equal People"?

    On our way from the primeval ooze, we've come far, seen wonders of all kinds - including "some more equal than others" - and taken jokes

    Our monarch has no power - except to declare support for Equal Democracy

  • rate this

    Comment number 535.

    Get an iPlayer, then you can view it on the Internet
    ( Just click on Peston's link at the end of his article )

  • rate this

    Comment number 534.

    MOTIVES that drove the politicians to EZ?
    Kohl - Guilt & Sorrow ( brother was killed in WWII )
    Mitterand - Fear of German power
    Viz Srebrenica, I think there are still people in
    Europe who think ethnic cleansing is OK.
    However, answer is not Political Union it is simply
    If you have these, you can outvote any muderous lunatics

  • rate this

    Comment number 533.

    531Since when has Europe ever understood real democracy, least of all Britain?What kind of democracy still has aristocricies, royal families, state religions? That's not democracy where I live. How can so many people who have such bitter hatreds among them ever form a real union? The whole absurd construct is just one more megalomaniacal scheme doomed to fail in chaos and tragedy.We're on the cusp

  • rate this

    Comment number 532.

    Well so much for following your three-part analysis, which I was so looking forward to:
    BBC only on England, Scotland, Wales
    Looks like rest of the world, including Canada is excluded.

  • rate this

    Comment number 531.

    Persuading 500m
    A "massive obstacle"

    Only if half-hearted, if 'career interest' so far exceeds 'public interest' as to 'justify' repetition of 'bankrupt' lines

    Or if so befuddled by Murdo-Fox Noise as to see 'slaughter' in humanity's home-coming

    Equal Democracy cannot exist unless understood & freely agreed

    Understanding cannot be forever prevented, unless we accept Quisling doom

  • rate this

    Comment number 530.

    from "Great Euro Crash"
    1. The EZ crisis was the fault of politicians -
    specifically Kohl & Mitterand ( banks just took
    advantage of the flawed situation )
    2. " Cart (Euro) before Horse (Political Union)" was used.
    BUT the solution is not always to rush for a horse
    The easier & often better solution is just to do without the cart (Euro).
    Why? Persuading the 500m voters is a massive obstacle

  • rate this

    Comment number 529.

    Are we near the point where the lambs will be led to the slaughter, when Europeans will be told that only immediate complete political integration will save the Euro and the EU? That they agree to it or they will all suffer eternal hell fire and damnation? That' it's now or never? It seemed to me Merckel was hinting a it. Does it really matter? Together or separately they will all go bankrupt.

  • rate this

    Comment number 528.

    Thank you for the excellent broadcast, Mr Peston, & BBC. It did indeed help clarify my own thoughts on the crisis.

  • rate this

    Comment number 527.

    Here's my suggestion to stop the panic.

    - The ECB undertakes to cover all of Greece's existing debts over and above 60% of GDP.
    - In return, Greece commits to pay back 2% of GDP back each year for a long period once its economy returns to growth; and commits to deep structural reforms of the economy (not simply more budget cutting).

  • rate this

    Comment number 526.

    European nations should revert back to their national currencies in an orderley way over a period of six/twelve months. The member states usually start with their 'National Interests' and the national currency is a good reflection of that. National interests seeem to be in direct conflict with 'Common Interests of the EU'.

  • rate this

    Comment number 525.

    Also S&P, Moody's and Fitch ratings agencies who are supposed to read the small print in any Instruments issued before rating, have still not been called to account that they rated the Asset backed securties without Assets AAA !

  • rate this

    Comment number 524.

    Robert Peston has a habit of selective reporting he failed to mention Anglo Irish Banks part played, and the fact that the Irish Government went into this crisis with a budget surplus, he also failed to mention the US Asset backed securities of which the assets had been stripped out so investors were only buying the risk - which caused the downfall of Lehmans which by the way were AAA rated !


Page 1 of 28



Copyright © 2015 BBC. The BBC is not responsible for the content of external sites. Read more.

This page is best viewed in an up-to-date web browser with style sheets (CSS) enabled. While you will be able to view the content of this page in your current browser, you will not be able to get the full visual experience. Please consider upgrading your browser software or enabling style sheets (CSS) if you are able to do so.