This year commemorates the 25th anniversary of the euro, but the festivities are notably absent. In times gone by, the Dutch guilder stood as a robust currency, challenging even the Swiss franc. However, those golden days are now but a memory.
Historically, the Netherlands and Switzerland were economic equals, both benefitting from the strength of a hard currency. A robust currency instills discipline, providing a bulwark against competition from nations with weaker monetary foundations. Simultaneously, a feeble currency can breed complacency among businesses. To stay competitive globally, both the Netherlands and Switzerland had to contribute significantly higher value. In contrast, the southern member states found solace in occasional solid devaluations.
Initially, the euro sparked global interest, emerging as a potential alternative to the US dollar, the de facto global reserve currency. However, the narrative shifted after the Great Financial Crisis when Greece, not Italy as anticipated, became the Achilles’ heel.
In 2012, the Greek economy, modest in size compared to the European economy, resembled a financial burden akin to the Rijksmuseum in the Netherlands. Rijkman Groenink, by taking over the Italian bank Antonveneta in 2005, played a pivotal role in saving the euro. This move thwarted the underhanded attempts of Gianpiero Fiorani, the top executive of rival Banca Popolare Italia, and led to the resignation of Antonio Fazio, the central bank’s president.
Inherent divergence
However, the inherent divergence within the euro system remains a persistent challenge. Each crisis exacerbates disparities rather than mitigating them. While Italy is often spotlighted, the real financial conundrum lies in France. France, one recession away from Italy financially, is also the raison d’être for the euro – a strategic move to curb Germany’s power within Europe.
The European Union owes its existence to the cooperative efforts of the Berlin-Paris axis. During the euro crisis, Germany advocated financial discipline, straining relations with the more relaxed southern states. Germany’s economic supremacy in 2012 has now waned, with dependence on Russian energy and an impending recession. This not only impacts Germany but also forces France to borrow more to sustain its spending habits.
The anchor of the eurozone, German interest rates, is under threat due to Germany’s economic challenges. This predicament forces France to face higher interest rates, akin to Italian levels, spelling trouble for the French budget. The French response to such crises is not gradual evolution but revolutionary reforms, potentially leading to a new republic sans the euro – the Sixth Republic.
Meanwhile, the purchasing power of the Dutch has halved compared to the Swiss. Despite political rhetoric extolling the virtues of the euro, the Swiss have navigated the financial landscape successfully for the past 25 years. Perhaps the premium on the Swiss franc is well-deserved, considering Switzerland’s enduring political stability, reminiscent of the Netherlands’ guilder era.
Han Dieperink, Chief Investment Strategist at Auréus Vermogensbeheer and former CIO at Rabobank and Schretlen & Co, contemplates the tumultuous journey of the euro and the shifting economic landscapes of European nations.