By Bransbourg, Gilles
Newsweek International , Vol. 158, No. 20
Byline: Gilles Bransbourg
The old empire could teach us a thing or two about the euro and its flaws.
Europe enjoyed a common currency regime 2,000 years ago. Back then, as today, there was no single common language, rather limited workforce mobility, and quite an active trade network. The Roman Empire brought relative internal peace to a wide area never to be united again. And it brought the sestertius--or, to be more accurate, a coinage of gold, silver, and bronze of which the bronze sestertius became the most commonly spread denomination. It certainly lacked a central bank, but it lasted for many centuries.
As a severe and predictable European debt crisis is slowly unfolding, it seems unlikely that the euro will achieve anything approaching the success or longevity of its distant predecessor. What went wrong, beyond the lack of political vision that is the only thing European governments seem to share?
Europe's fundamental sin is actually simple. The Maastricht Treaty of 1992, in creating a single legal tender and monopolistic currency for the countries that ratified it, fundamentally undermined the very founding principle it ostensibly enshrined: that of "subsidiarity," or the principle that holds it is always better for a matter to be handled at a local level than by a centralized authority.
The peculiarity of the Roman political system was indeed its taste for subsidiarity. The imperial government was usually quite happy to restrict itself to the essentials--mainly military defense and the rule of law--while devolving to local civic authorities most of the burden of managing their own issues. As such, the cities and regions, notably in the Greek or Syriac-speaking East, struck their own lower-value bronze coins as a complement to the usually higher-value imperial coins, leading to specific monetary zones.
As a result, the issuance of local money was to a large extent a local matter. Gaius, the second-century jurist, wrote that "money, although it should enjoy the same power of purchasing everywhere, is easier to obtain in some locations and interest rates are lower, while it is harder to find in other locations and interest rates are higher." (Would that he were available today for a powwow with Mario Draghi, president of the European Central Bank.)
We are touching here on the essential shortcoming of the euro. Since its creation, Greek, Spanish, and Irish banks and governments have been able to borrow like Germans, Austrians, or the Dutch, under the cover of what was perceived to be the implicit uniformity and guarantee of the euro. As such, the common currency fueled insane property bubbles and equally insane public and private indebtedness and corruption. Logically, internal trade imbalances and competitive gaps kept widening. To simplify, life under that common currency regime has been like telling wolves and sheep to enjoy freedom together in open fields, while the suggested write-down on the Greek debt is equivalent to providing more grass to those sheep in the hope they will last longer. Incidentally, if consulted, the sheep may say no to the bailout package and the euro altogether.
America is not so different. …