voters never approved the euro — 4/06/17

Today’s encore selection — from War and Gold by Kwasi Kwarteng. European countries have high levels of trade with each other, so they needed currency exchange rates that are relatively stable. In the early twentieth century, having their currencies tied to gold provided that. After World War II, it was provided by the Bretton Woods agreement, which tied these major currencies to the dollar, which was in turn tied to gold. But after President Richard Nixon took the U.S. off the gold standard in 1971, the need reappeared and a number of European countries created a mechanism called the “snake,” which constrained fluctuations of currencies, and then the “exchange rate mechanism,” which did much the same thing. But the ultimate dream was to create a single currency — the euro — in one of the boldest monetary initiatives in history. For something so resolute and so laden with potential moral hazard, and for something that has in recent years contributed to so much European economic pain, it was surprisingly the creation of technocrats, and never taken to any country’s voters for their approval:
“The fiscal situation of the European countries which aspired to join the single currency [in 1997] did not inspire confidence. All through the late 1990s, the lack of preparedness of certain EU countries to join the euro was a subject of open debate. ‘There has, of course, been some sleight of hand,’ wrote Rupert Cornwell in the Independent in February 1998. ‘It remains mysterious quite how Italy, which for years regularly ran double-digit budget deficits, conveniently slashed last year’s to a mere 2.7 per cent of GDP.’ It was obvious, even before the euro was launched, that the single currency was an almost purely political project, which would be pursued without any real regard for the underlying economic reality. As the Frenchman Jacques Rueff had said, ‘Europe will make itself by money or not at all.’ The words of the Portuguese Prime Minister António Guterres at the Madrid summit in December 1995 were even more grandiose and emphatic: ‘When Jesus resolved to found a church, he said to Peter, “You are Peter, the rock, and upon this rock I will build my church.” You are the euro, and upon this new currency we will build our Europe.’

“There was never any idea that the people of Europe, the citizens of the individual states, would be consulted before this momentous step was taken. As [Otmar] Issing [the German economist who also served as a member of the European Central Bank’s first executive board], himself later admitted, it was ‘doubtless in Germany that resistance to EMU was the greatest’. The decision to ‘abandon the D-Mark required a great deal of political courage’, he remembered. In opinion polls conducted as late as the autumn of 1995, only 34 per cent of Germans were in favour of the single currency, while 45 per cent were against. Needless to say, these figures were reversed as the decade wore on and the single currency became more imminent. By the spring of 1999, some 55 per cent of Germans now supported the single currency while only 36 per cent continued their opposition.

“In the same poll from 1995, the Finns were shown to be the least in favour of the currency among the nations which eventually joined: 53 per cent of Finns were hostile to the currency, while only 33 per cent approved. It is important to grasp the extent to which Europe’s political elites were committed to the single currency. The reasons why numerous political figures and bankers became strong advocates of the euro differed. For the Germans, it was often as much a symbol of fiscal discipline as a badge of European unity. For Issing, the benefits of the euro were explicitly focused on the need for fiscal discipline. This was a view widely held in Germany and the Netherlands.
“The people of Europe, of course, had not been consulted before the single currency was officially launched on 1 January 1999. The euro was always conceived as an elite project, conjured up by technocrats, to be foisted upon a largely acquiescent and amorphous European public. There was as yet no European superstate, a fact which worried Germans, unsure of whether a monetary union was possible without a political union.”
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War and Gold: A Five-Hundred-Year History of Empires, Adventures, and Debt

Publisher: PublicAffairs
Copyright 2014 Kwasi Kwarteng
Pages: 277-278

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the president’s financial woes — 7/07/14 is a brief daily email with an excerpt or quote we view as interesting or noteworthy, offered with commentary to provide context.  There is no theme, except that most excerpts will come from a non-fiction work, mainly works of history, are occasionally controversial, and we hope will have a more universal relevance than simply the subject of the book from which they came. 
Today’s selection — from William McKinley by Kevin Phillips. In 1893, Ohio governor and Republican presidential hopeful William McKinley got into deep financial trouble. It was so bad that his plan was to resign and return to his law practice, but his political friends bailed him out instead. Though his Democratic opponents used this episode against him, the harm was less than it might have been — he received some sympathy because his distress came during one of the worst crises in U.S. history and because he himself had notably helped others in need earlier in his career:
“The great depression of 1893 to 1897, a political prop first to [William] McKinley’s rise to the presidency and then, through its timely finish, to his success in office, was one of the two or three deepest in U.S. history. Overextended railroads, weighed down by watered stocks and bonds, led the crash. Banks and farm prices followed. Farm destitution and general unemployment swelled enough that in 1893, the Populist governor of Kansas, Lorenzo Lewelling, issued his famous Tramp Circular, likening the jobless men on the roads to the social unrest of Tudor England and prerevolutionary France. …

“Ironically, [McKinley] had to survive his own brief brush with the economic downturn. He had endorsed notes for an old friend and schoolmate, Robert Walker, in the amount — or so McKinley thought — of some $17,000. Already successful, Walker was starting a tin-plate business. When he went bankrupt in 1893, supposedly with a liability of $25,000 or so, McKinley cut short a trip and returned to Ohio. His plan, he told assembled friends like Mark Hanna, William R. Day, Herman Kohlsaat, and banker Myron Herrick (himself later governor), was to resign the governorship and resume the practice of law. Within a day or two, as banks were contacted by his friends, McKinley’s obligation turned out to rise to $60,000 and finally $130,000 ($3.3 million in today’s dollars).

“Mrs. McKinley’s $70,000 estate from her father was in her name and not reachable, but she insisted on pledging it to help. Hanna, making the arrangements, allowed her to deed it to him in escrow ‘to be used if needed.’ The governor also insisted on turning over his properties to trustees. Convinced not to resign, for the moment, he rejected the suggestion of raising funds through a public subscription. He accepted the services of his friends as trustees in consolidating the debt, but told them that he expected to pay it himself. Instead, they raised the money from private contributors, mostly in Cleveland, Pittsburgh, and Chicago, and paid off the cosigned notes so that McKinley — by now, the probable next president — did not need to go back to practicing law. …

“In 1893, this did not do the damage it might have in another year. The public was sympathetic. Voluntary public offerings received at the governor’s office alone exceeded the $130,000 needed, although they were all returned. During that autumn’s gubernatorial campaign, the miners McKinley had defended without charge in 1876 came to see him; they wanted to help by paying the money he had earlier refused. Here is biographer Leech’s conclusion:
His trouble had awakened strong sympathy, not only for a kindly man whose trust had been betrayed, but for an honest politician who had not used public office for personal gain. The whole circumstance of McKinley’s bankruptcy and the liberality of his friends became, as the Democratic Brooklyn Eagle later commented, ‘a matter of hearthstone pleasure around the land.’ “