The Euro's Secret Weakness

We are in the process of yet another assault, organized by the native authorities, towards one of the half-wanted, half-unwanted so-called national goals. As with the Schengen zone, so with the common currency of the European Union, the government is wandering between the reasonable wait for the problems to be eventually solved, aka Simeon Djankov with the Euro, and enthusiastic demarches to enter right now, quickly, right away. Despite the debt crisis and Greece in 2009 and despite the refugee crisis from last summer.

As was evident from the numerous studio discussions (in which we from the EKIP also participated ) and from the recent conference held in Sofia, there is a characteristic deficit in the positions of those who want us to become part of the Eurozone as soon as possible - the otherwise popular, often by the same people, analysis of benefits and costs is missing.

There is certainly no shortage of high-flown words about "a seat at the table in deciding important policies", "consolidating Bulgaria's presence in Western civilization", "introducing European rules", "tourists will find it very convenient", etc. We can argue about all these facts and relevance, but in fact it is even more important to compare them with the possible disadvantages. And the disadvantages of the Euro were magically forgotten.

To perform the missing cost-benefit analysis, let us first go through the most serious-sounding promises of the Euro's defenders. The observant reader may notice an interesting (and important for the argument in this article) correlation. The more serious the claim of the pro-euro argument, the less often we hear it in public.

Greater economic growth (more investment)

To begin with, as Vaclav Klaus says, since the establishment of the Eurozone, the economic growth of its members has fallen compared to that of previous decades. According to ECB data, the average annual growth of the Eurozone countries was 3.4% in the 1970s, 2.4% in the 1980s, 2.2% in the 1990s and only 1.1% between 2001 and 2009 (the decade of the euro). A similar decline has not been observed anywhere in the same period in economies without revolutions and military actions. Let's not mention what happened after the 2008-2009 crisis.

Without having space to elaborate, we can say that we have no empirical data showing that the introduction of the Euro has in any way increased foreign direct investment (which is a main pillar of development in countries like ours). We have no evidence of any convergence that has occurred as a result of the adoption of the Euro.

Lower interest rates and lower bank fees

Lower interest rates are a possible effect of joining the Eurozone, but as a start, it is good to ask ourselves whether they themselves are necessarily something positive. And specifically, whether the artificially low interest rates from the adoption of an unfinished currency system with a central bank that conducts an aggressive monetary policy are a plus for the country's economy. An entire school of economics talks about the Austrian business cycle, which places artificially low interest rates at the heart of the dangerous cycle of bubbles and recessions, which we clearly went through in the period 2007-2012. Interest rates should ultimately be a market dimension of the demand and supply of credit, not an indicator like the incidence of measles, which simply needs to be constantly pushed down.

If we have not forgotten, even now we have extremely low bank interest rates by historical standards. At the same time, as the data from 2017 shows, banks continue to make money through fees rather than their traditional business of saving and lending, despite good conditions and the fact that we are approaching the peak of the business cycle. The problem with these fees is already being solved by competition from fintech companies or solutions such as cryptocurrencies, and ultimately stems from the cartel structure of the banking sector. With more centralization we will not achieve market-based reductions in fees.

More trust in the banking system

For the author, the very idea of trusting a fractional reserve banking system is controversial because of the endemic instabilities, moral hazards, and distortions of this type of banking. But given the need for at least a relatively stable financial system, we can assume that better regulated banks are still a plus for the domestic economy.

The recent experience with the bankruptcy of Corpbank has shown us that domestic regulators are not doing a particularly good job. At the same time, let's not forget about the bankrupt banks in Latvia and Italy under the watchful eye of the ECB. In any case, even if we assume that the single European supervision is better than the BNB (which is a valid argument), it does not necessarily go hand in hand with the single currency and its problems. In fact, as it turned out very recently, even if we want ERM2 and then the Euro, we will first have to go through the banking union. That is , if we want a European regulator so much, we can only get it, without the unfinished currency area and the other problems of the common currency.

European rules, reputation and a place at the table

If we think about it, we remember this talk from the time of our entry into the EU, when the country was faced with a kind of civilizational choice. And considering the alternatives, the political capacity and the ideological moods, in the end the Union turned out to be, as it seemed, the right choice.

Time has shown, however, that not everything is rosy. A decade after accession, a convincing argument can be made that the political climate, the judicial system, and media pluralism are significantly worse today than in 2007. (1) cohesion funds played a significant role in this, and (2) the tolerance we have seen from Europe towards corruption, now that the country is already part of the common club.

It is undeniable that in the EU we have a place at the table only as the most loyal satellite of Berlin and Brussels – without actually being part of the decisions. We do not even show character like other countries from Eastern and Central Europe, which through their independent positions actually manage to have a say. And while some shaped the future of the EU, others left it, we listened and filed away, reinforcing the position of the poorest region.

Why do we expect that when we entered the more important political structure, not only did we not receive the promised improvement, but also experienced a deterioration in many of the same effects, now suddenly the “magic of Europe” awaits us again. We declared our place in Western civilization 10 years ago, do we now need to follow the EU in all its mistakes? Another manifestation of the familiar native disease with the messiah who will come from somewhere and fix us.

The secret weakness

And here we come to the secret weakness of the Euro – the arguments in its defense are so weak that in fact the main thing we hear are vague emotional appeals to the great European virtues and bragging about how safe things are and there is no going back (because we promised upon entering the EU to adopt the common currency).

In the background, topics such as why we are changing the proven and working system called the currency board, why we are entering the universally recognized as unfinished optimal currency area of the Euro, why we are rushing, considering the growing power of the Eurosceptic parties on the continent. Why do we forget all the arguments presented HERE, HERE and HERE?

Shouldn't we slow down a bit, hold a public debate, and why not a referendum?

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