Even now, after all that's happened to Cyprus, they’re queuing up to join the euro

It defies belief that Poland and others are still keen on joining the economic doomsday machine of the single currency

Despite an ongoing financial maelstrom, the euro hasn’t yet lost a single member, and indeed is continuing to add them Photo: ALAMY

 

 

It was a while back, so it’s hard to remember the exact question, but I certainly recall the answer. Visibly angered by my suggestion that the euro was an unsustainable construct, Michel Barnier, European commissioner for internal markets, insisted that not only was it perfectly sustainable, it was so manifestly desirable that within five to 10 years it would have expanded to include all 27 members of the European Union bar one – the one being us, naturally.

With the eurozone crisis already in full flood, his prediction appeared at the time to border on the delusional. Here was another eurocrat with his head buried in the sand. Yet I have to admit that, contrary to all rational economic analysis, the numbers do seem to be stacking his way.

Despite an ongoing financial maelstrom, the euro hasn’t yet lost a single member, and indeed is continuing to add them. Estonia joined last year, Latvia enters next year and Romania the year after. Meanwhile Monaco, San Marino and Vatican City have concluded agreements allowing them to use it as their official currency. Similar arrangements come into force for Andorra soon. Bulgaria operates a currency board with the euro, while Kosovo and Montenegro have unilaterally adopted it without even being members of the EU. They therefore have no say in policy decisions.

Most astonishing of all, Poland’s prime minister, Donald Tusk, appeared this week to join the queue by suggesting a referendum on the matter. The trade-off here is that by agreeing to the vote he may get the parliamentary majority needed for the constitutional changes deemed necessary for euro membership.

I say “most astonishing of all”, because Poland is actually the best example there is of the merits of giving this economic doomsday machine as wide a berth as possible. Appreciation of the zloty during the boom helped the country escape the loss of competitiveness that afflicted the eurozone periphery, where big influxes of credit from the core caused wages and trade deficits to balloon. By the same token, devaluation allowed Poland largely to avoid the deep slump that engulfed much of Europe when the banking crisis took hold, and to enjoy relatively good economic growth ever since.

Of course, the natural market remedy of currency realignment doesn’t always work – as Britain demonstrates – in preventing the build-up of imbalances. Yet even here it has provided at least a degree of protection. If the UK had been in the single currency, the credit-fuelled boom of the Noughties would have been even bigger and the subsequent bust infinitely worse. We would have been Spain to the power of 10. As William Hague remarked 15 years ago, the problem with the euro is that of being “trapped in the economic equivalent of a burning building with no exits”.
That Mr Tusk should wish to begin a national debate in which he hopes to convince a sceptical population of the merits of euro membership is astonishing enough, given Poland’s great escape thus far; that he should do so in the very week that the eurozone has brutally thrown poor little Cyprus onto the economic scrapheap makes it almost unbelievable.
It all goes to show just how powerful the idea of ever deeper union remains for a Continent still so recently wracked by war and conflict. This is particularly the case for the former Soviet satellites, barely more than 20 years out from beneath the Russian yoke.
Like all eurozone aspirants, Mr Tusk expects Poland to become not Greece, Cyprus, Portugal or Spain, but Germany, the Netherlands, Finland or Austria. He’s a poster child for Angela Merkel’s vision of the new euro as a federation of German lookalikes.
Good luck to him. His foreign minister, Radek Sikorski, is even bolder in his ambitions. Once in the euro, he said a few months ago, Poland would quickly displace Britain as one of the three most influential countries in Europe. This is what the European “project” does to politicians: it puffs them up with their own sense of self-importance to the point where they can no longer think straight.
It’s easy enough to see why the politicians are rather keener than the people they govern. As members of the euro, they get to sit at the high table with Angela Merkel and indulge in the make-believe of equal influence and partnership. Unfortunately, this lasts only as long as it takes to run into trouble or step out of line, at which point the national leader finds he has no say in the matter at all. If the rules were applied consistently and universally, then the consequent punishment might just about be considered to have some sort of “greater good” merit. But they are not.
Cyprus was thought too small to matter and therefore a good subject for experimentation. Yet in performing the dissection, Europe has managed both unfairly to victimise a member state and to set precedents that threaten to deepen the crisis elsewhere. By hair-cutting uninsured deposits in insolvent banks – a reasonable enough principle in itself, but not in the midst of an all-embracing systemic financial crisis – policymakers are spreading panic to weaker banks in the rest of the eurozone and therefore prompting economically debilitating capital flight from the periphery to the core.
Capital controls have further established a form of apartheid where some euros are more equal than others. What can happen to Cyprus can happen to any of the eurozone footlings. And Mr Tusk wants to join such an economic deathtrap?