Many economists, including Paul Krugman and Nouriel Roubini, have argued that the European Monetary Union is in trouble because of the fiscal difficulties of a few of its member countries. Some have predicted that the euro will fail.
Because the prospects for a future single global currency depend upon the continued success of the euro and the currencies of other monetary unions, I discussed the euro with Morrison Bonpasse, president of the Single Global Currency Association, to get his insight into this situation.
Theodore F. di Stefano (TdS): What’s wrong with the euro, and why are some economists looking askance at it?
Morrison Bonpasse (MB):
Very little. The problem is that it’s a currency of 17 countries issued by a single central bank, and is therefore not subject to the fiscal difficulties of the government of any one country. However, because currency traders and others are so used to thinking that governmental fiscal problems guarantee monetary problems, the euro has been criticized.
TdS: Why don’t the problems of Greece, Ireland, and Portugal translate into problems for the euro?
It’s because the value of the currency depends upon the soundness of the issuing bank and the people’s confidence in that bank’s stewardship. It does not depend upon the fiscal soundness of any one country. When New York almost went bankrupt in 1975, the value of the U.S. dollar was not in jeopardy. The State of California now has a large deficit to control, and, again, there is imperceptible risk to the dollar.
TdS: What if Greece, Ireland or Portugal goes bankrupt? Wouldn’t that affect the euro?
Not necessarily. If a euro member state goes bankrupt, then its creditors, or bondholders, will obtain what they can obtain in euros, just as if the bankrupt state were a bankrupt corporation or a person. Such partial payments would be in euros and not some inflated national currency. Of course, fiscal difficulties drive up the required interest rates for loans to such governments, but the value of the currency should not be affected.
TdS: Why are you optimistic about the future of the euro?
European countries are seeking to join, and not run away from, the euro. Estonia just became the 17th euro zone country. Other countries are waiting to fulfill the admission criteria. It’s a difficult decision for countries, but the historic direction is clear. Over the past year the value of the euro, in dollar terms, has fluctuated between (US)$1.20 and $1.45, and is now at $1.38. There are presently 27 European Union Countries, soon to be 31, and all but three of the 10 non-euro countries are required to join the euro at some reasonable point. The three exceptions are Denmark, Sweden and United Kingdom, and even for them, it’s a question of when, not whether.
TdS: What about Paul Krugman’s point in his January 16, 2011, New York Times Magazine article, “Can Europe Be Saved?” — that having its own currency has helped Iceland climb out of its recent financial crisis?
If Iceland had been using the euro in 2008, its financial crisis would not have become a devastating currency crisis. Paul Krugman compared Iceland to Brooklyn and noted that it makes no sense for Brooklyn to have its own currency because its economy is enmeshed with that of its neighbors. In a global, digitized world, Iceland’s economy is enmeshed with that of its neighbors, too — even if separated by an ocean. Iceland is one of the four current “Candidate Countries” to join the European Union, with membership expected in 2012. Then the process for joining the euro zone would begin, as required for new EU members.
TdS: Why did you say that moving to a future Single Global Currency depends upon the success of the euro?
Presently, the world has regional monetary unions, such as the European Monetary Union, the Eastern Caribbean Monetary Union, and the West and Central African Monetary Unions. The EMU is the largest and most successful and is growing, and is a model for future monetary unions, including the future Global Monetary Union. Several Persian Gulf countries are forming a monetary union, as are several East African countries. As the euro zone grows, people around the world are increasingly asking the question: if it works for 17 countries, soon to be 31, why not for 192?
TdS: How would the world implement a single global currency?
The world would implement a single global currency by expanding existing monetary unions, by folding them into a single global currency. The Single Global Currency can be said to exist when these currency consolidation trends create one currency for countries representing approximately 40-50 percent of the world’s GDP. After that, we will have passed a “tipping point,” and the remaining countries will clamor to join.
TdS: How are you spreading the word around the world about your belief in the need for a single global currency?
We have a website, and we have published a book, The Single Global Currency – Common Cents for the World, and the subsequent 2009 edition of that book. When the people of the world learn how good a single global currency will be for them and the world, the movement toward that goal will accelerate.
Thanks so much for your time, Morrison. You’ve certainly given us a lot to think about.Good luck!