By Griffin W. Huschke, Mayme and Herb Frank Research Fellow
Yesterday German Foreign Minister Guido Westerwelle—yes, that Guido Westerwelle—held a press conference reassuring everyone that Germany would defend the Euro. What or whom Germany was defending the currency from was never really clear, but these statements were largely just an opening for a thinly veiled counter-punch against Luxembourg’s Prime Minister Jean-Claude Junker, who had issued a diplomatic haymaker earlier in the week. Junker was upset Berlin shot down his star-crossed EURObond plan, and Westerwelle fired back.
While the latest development in the saga of issuing EU-wide bonds isn’t all that exciting, Dr. Westerwelle rightly touched on an aspect of the Euro debate which has been largely glossed over. When discussing the currency, he explained that the Euro “is more than just a currency made of paper and metal. It is a currency of peace, a political project that also strengthens us in a time of globalization in comparison with many of our competitors.”
Dr. Westerwelle is right to bring up the intangible aspect of the Euro, especially at a time when the chatter of opting out of the monetary union is getting louder. While even the most ardent Euro-haters have to know that abandoning the currency would engender an economic disaster of apocalyptic proportions, few have discussed cultural costs of changing money.
Latin America is a great example of the cultural costs of changing currencies. Nine countries currently use the dollar as their official legal tender, while many other nations, like Nicaragua and Bolivia, peg their currency to the dollar. When Nicaragua and Bolivia do this, it creates exactly the same economic conditions as using greenbacks for official tender. There are a lot of reasons why some countries choose to print their own currency when it’s exactly the same as the dollar, but symbolism and cultural impact is certainly a factor. Money plays a big role in shaping national identity, and changing that identity is tough.
This lesson applies to supra-national entities like the Eurozone. Countries that have joined the Euro aren’t just buying into its economic benefits—they’re buying in the very idea of a closer integrated Europe by forgoing their rights as a sovereign country. Opting out of the Euro, even if it were economically possible, would also mean going against the political and societal norms of an integrated Europe, which has been internalized in many areas. While good news is that there has been a deafening silence from serious politicians when it comes to leaving the Eurozone, hopefully more people take all of the factors into account when chattering about Europe’s financial future.