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Publié par Michel Gurfinkiel le 18 décembre 2011


By Michel Gurfinkiel

December 10, 2011 – 12:00 am

NOTE (December 18, 2011). The following column was posted on PajamasMedia (pjmedia.com) on December 10. It has been validated, so far, by the market’s reaction to the EU « refondation » initiative.


The French have growing reservations about the euro: 36% want to withdraw from the eurozone and go back to the franc, the old national currency; 4% have no opinion, which means that they don’t warmly support the single European currency; 44% say it is a handicap in the present context of a world economic crisis; 45% say it doesn’t serve the national interests of France; and a staggering 62% say it is damaging the average French family’s standards of living and purchasing power.

Some “realist” analysts dismiss these figures as mere panic. Just two months ago, only 26% of the French mentioned withdrawing from the eurozone. The most articulate “withdrawist” was Marine Le Pen, the leader of the far Right turned populist National Front. She advocated a planified restoration of the franc as the sovereign currency of France, complete with a 30% devaluation. But most people were then of the opinion that the core of the eurozone (Germany, France, the Netherlands) was safe, and that the relevant question was how to deal with the less significant and less efficient partners (essentially the southern tier of the European Union, from Greece to Portugal).

In the meantime, however, the core itself started to melt. There was talk, in particular, of stripping France’s triple A credit rating. Even Germany got nervous. Both the Paris and the Berlin cabinets envisioned drastic reforms of both the European Central Bank status and the European Union statutes. This, to say the least, was an admission that the present ones were not perfect.

No wonder opinions regarding the euro plummeted shortly after. But once some reasonable steps are taken and core countries’ credit is restored, polls — according to the “realists” — will switch back in favor of the euro.

Or will they ? The measures that most European countries — with the notable exception of the UK — finally agreed upon last Friday in Brussels will be an acid test in this respect.

The problem of the euro is that it is a currency, but not money. Money is largely magic. It is the sum total of what allows production, trade, innovation, profit. It works as long as there is confidence in it. “Give me good politics, I’ll repay you in good finance,” said Baron Louis, the finance minister of King Louis XVIII under the French restoration. In other words, see to it that everybody thinks he has a future under your government, whether he is a Royalist or not. As long as that will be the case, it will be comparatively easy to manage business, raise taxes, and balance budgets.

Baron Louis’ modus operandi was the secret of the American era of prosperity from 1945 to 2008. In a globalized world, the United States — as a benevolent hegemonic power — was providing good politics, i.e., confidence, and it allowed for good business everywhere. Whatever the theoretical state of the dollar and other currencies, the United States had iron: the will and the practical means to make war if needed. It cost the American taxpayer 4% to 5% of its GDP annually — no other Western business-oriented nation (except Israel) invested as much. Europe as a whole never took off from a 1% to 1.5% level. France and the UK never raised above 2%. And the American iron transmuted into gold.

The Europeans got weary of American leadership — especially when things were so good throughout the Reagan and then the Clinton booms — and most people forgot why they were so good. They mused about having their own currency and outdoing the dollar. They did it. They created a currency. But no money. Because they were just unable and unwilling to get together and to build up a federal European government and a federal European army. They did not realize there is no gold without iron.

Just in order to exist in front of the dollar as a mere currency, the euro had to be the most deflationist one ever, i.e., to be linked to superhigh interest rates and a rigid no-inflation policy. This in turn meant that local European economies were suffocated, and that the European welfare state was unworkable overnight. The only way out was to make maximum use of the non-European, still American-centered, globalized world. Even there, however, success was linked to inner discipline. The only eurozone country that really survived the euro was Germany, where industry workers agreed to lower wages in order to stay competitive.

The impact of the euro on the European standard of living was horrendous. In France, it may safely be estimated that most prices went up by 100% to 200% at least, and in some cases by 700%. In other words, prices that were labeled in francs stayed at the same level, except that they were from now on labeled in euros, a 6.5 times higher currency. The lower income class was hurt badly, but could rely on many aids and gratuities from the state. The middle class was crushed, as Pr Louis Chauvel from the Institut des Sciences Politiques showed in a brilliant essay in 2006, Les classes moyennes à la dérive  ( “The Drifting Middle Class“).

As for the grandiose scheme of beating the dollar, euro promoters were never, in my estimation, smart or bold enough to do anything on purpose in that respect. But the very existence of the euro had a destructive effect on the American-based money that had sustained world prosperity since WWII. The moment there are two equal weight currencies, people who deal in finance must speculate, i.e., play one currency against the other. If they don’t, they are out. So the euro — the ghost menace — eroded the dollar systematically. Not out of design, but rather out of mechanics.

Dumping the euro may not be the solution at the present stage. Staying with the euro as an anti-dollar is not an option either.

© Michel Gurfinkiel & PajamasMedia, 2011

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