I Love the Euro, But...

David Champion

I can travel anywhere in the eurozone without having to pay money to change currency. I don't have to work out in my head how much stuff is worth. You can make your shoes in Portugal and sell them in Germany without your profit margin bouncing all over the place. Sure, the currency has a dull name, but that's no reason to turn against it.

But I'm rapidly coming to the conclusion that it's probably a negative sum game. Sure, I save some costs, but as the chickens come home to roost for Greece and others, it's looking rather as though the overall bill for having a euro will exceed the overall benefits.

For a start, the costs of multiple currencies weren't necessarily a waste of money. Yes, I lost 2% every time I paid in drachmas or marks rather than francs when I lived in France in the 1990s, which I don't pay any more, but you could argue that this "tax" at least supported a thriving business in currency exchange, creating some profits and employment. Perhaps that's a stretch, but we're arguably talking value redistribution rather than value destruction.

Let's look at the costs of the euro. Having a single currency didn't mean that the risks of investing in Greece disappeared. All it meant was that you'd taken the canary out of the mineshaft. The currency markets provided much needed discipline. Any government thinking about bribing the electorate with goodies and tax breaks and other fiscal or monetary irresponsibilities knew it would face the wrath of the currency markets and get a fairly public humiliation if it went too far.

But take away that discipline and the temptation to take a short-term view and pile into higher-return euro assets in Greece and similar countries rather than stick with stodgy German assets was hard to resist. Sure, there was the credit default swap market, but that was pretty newfangled and was not nearly as credible a canary as the forex market.

Instead, we've had to wait for the fat lady (my apologies, couldn't resist) to pipe up and the cost of listening to her song is likely to be a big haircut on bank debt, severe fiscal discipline, and, as a result, an almost certain economic stagnation in most European countries. There'll be less employment and more social unrest. Perhaps it would have been better to have kept on paying 2% forex charges and worrying about profit margins.

And we'd have kept all those pretty banknotes and coins.