Why should not we Hungarians have a firm opinion on the euro and a proposal for the future?
Every seven years a new European Commission and every eight years a new European Central Bank management replaces the old: these events rarely coincide with each other. But this time the two switches occur together. We should therefore not miss the opportunity to ask a question: actually how did the first two decades of the euro pass and are changes needed to the rules of the euro game?
Now, should we Hungarians join this public debate? We must because we have undertaken to once become a member, although we could not be present in Maastricht in 1992 when euro was decided. What is more, a large part of the current member states (the Visegrád countries, the Baltic states and the South-East Europeans) were not EU members at the time, and so they could not participate in decision making. We must because two-thirds of Hungary’s exports and 70% of its foreign trade bind us to the euro area, the country being one of the most open economies of the EU, and so the functioning of the euro area has a profound effect on the Hungarian economy.
The first 20 years of the euro show two different decades: the first was mostly a success, the second mostly a failure. The balance of the two is positive for few members and negative for many. The single most important reason is that the euro was designed for steady growth, but it was not prepared for turbulent times. The 2008 global financial crisis, then the 2011-12 euro crisis shocked the entire euro area and would have crushed five economies of the then 17 had they not received an external bailout.
The balance of the first two decades is positive for two member states (Germany and the Netherlands), it is nearly neutral for one (Greece) and it is negative for the rest of them (for more information: analysis by the Centre for European Policy). The Italians and the French had enormous losses: in 20 years they lost several years’ GDP. What is more, the losers lost four times more than what the two members won. The world outside the euro area (mainly the US and China) won much more with the euro than the whole euro area. And this is an answer to the second question: it is not just possible but necessary to prepare the reform of the euro, a Maastricht 2.0 agreement.
There is still time to do our compulsory homework until the next crisis hits and to prepare a new agreement for 2022. The new leaders of the EU no longer and not yet have to deal with crisis management. They are new leaders, that is why they can undertake a euro area 2.0 project.
The first step is a sincere stocktaking with open debate and internal analyses. This is possible because there is a chance to escape the euro trap. It is possible to develop a flexible monetary policy framework (as has been proposed by the World Bank’s former Chief Economist) which will renew the five criteria of membership not for one but several groups within the euro area. It is also important to rectify the other errors (migration policy, leaving the single internal market incomplete, disrupting EU enlargement, the removal of the UK from the EU), as not only the weaknesses of the single currency but also political errors in other areas have led to stagnation in the EU.
It is worth listening to all opinions as: ‘When the eyes and ears are open, even the leaves on the trees teach like the scriptures’ (Kabir).