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How should we view the "necessity" of giving up the national currency and adopting the euro? What type of reasons should there be behind it? What can we discover when evaluating the "birth certificate" of the European single currency? Should an accession country formulate its own criteria or it is just worthless because everything that should be done is written in the relevant chapters of the EU Accession Treaties?

According to the intrnational law (the Founding Treaties), the introduction of a single currency is an obligation for every EU Member State, with the exception of Denmark and the United Kingdom. The Founding Treaties are strictly setting the procedures, conditions and requirements leading to the introduction of a single currency.

Thus, a Member State is just an object of administrative treatment with very rigid and highly questionable rules. However, with such a crucial decision, a Member State should always be an active subject, freely displaying its own individual preferences and wishes.

Any new Member State of the Union can already in the accession process ask for any exceptions or adjustments to the Founding Treaties. This applies, of course, also to the single currency provisions. If this is not done in time (i. e. during the admission process) this chance is lost forever.

Economic remarks

The satisfactory convergence of the economic cycle is a condition sine qua non for any satisfactory introduction of the single currency. The obvious policy tools used by central banks for the expansive monetary policy are exactly the opposite for the restrictive policy. Here, the frequent mistake occurs: the European single currency is joined with the single monetary policy, but leaves the fiscal policy with the Member States.

This is not so: the conditions for the budget deficit and public debt are strictly fiscal conditions. The minister of finance of any Member State is simply not allowed (without strong consequences from Brussels) to propose to his/her national Parliament any state budget harming the 3 per cent limit for the budget deficit and 60 per cent limit for the public debt.

For the transition economies, especially in the recession period of their business cycle, this condition can be followed by a crucial economic and political aftermath.

In short, immediately after accepting the necessity to converge towards the European single currency (i.e. to fulfil the Pact of Stability and Growth criteria), Member States are loosing both realms of their economic sovereignties: the monetary one and the previous fiscal sovereignty as well.

Thus, this particular construction of obligatory convergence (given as an obligation by the Accession Treaties) is implicitly incorporating the rudiments of full fiscal, tax and thus political union.

Legal and economic requirements for the single currency are only secondary provisions. They are nothing but the economic consequence of a political ambitions and not vice versa. For example, the interest of the present EMU Member States that the newcomer will be really better off when accepting the single currency, is not at all a part of the single currency rules today.

On the contrary, these "domestic" or "subject-dependent" criteria could help to build a real economic project - it means a project without any result, known a priori before the relevant market interactions provide the answer of what exactly and how quickly something is going to happen, as grounding the possibility of adopting the common currency.

When we refer back to the Maastricht Treaty (Article B), we can justify the big suspicion and clearly see that the single currency is constructed and treated as a purely political tool to construct the EU political identity on the international scene, as well as the introduction of a citizenship of the Union. These are nothing but the properties of a federal state (common currency, "economic" government, common foreign and security policy, citizenship of the Union.) Thus, the EU Member States are now still in the situation of achieving a single currency as a purely political goal, no matter what. In such cases, however, the price is obviously high.

The 'economic' instead of 'political' construction of the single currency zone would just offer a framework of economic conditions including the fulfilment of the subject-dependent (i. e. newcomer-dependent) conditions as the necessary condition to adopt the single currency.

No legal or political pressure (or even commitments) should be imposed on the single currency candidates. A fully competitive and working single currency zone can be created only on the basis of long term profitability of its Member States. Therefore, adopting a single currency should express a double consensus:

- External: the preent single currency zone agrees to accept a new member

- Internal: the newcomer is firm that adopting the single currency is a good step and is in its own interests.

Conclusions - Why Single Currency?

The European single currency is a purely political project. It is designed to be just a tool designed "to promote economic and social progress and a high level o employment and to achieve balanced and sustainable development ... through the strengthening of economic and social cohesion." These are purely ideological goals and declarations applied to the Member States of the European Community on a federal basis.

The European Central Bank, European Commission, the European Council and the Council of Ministers have thus the supreme task to achieve the economic and social progress in the EU through the establishment of economic and monetary union, including a single currency.

Even in such a strict legal framework, a Member State without legal exceptions and special treatments can achieve its goal, no matter how divergent it is from the single currency provisions in the Founding Treaties. (Consider the case of Sweden still not applying to become the member of the ERM II system.) The costs and benefits of directly and indirectly violating these rigid rules should be carefully observed.

Without being exceptionally sceptical to the durability of agreements, let's admit that everyone swearing to stay "together forever" can end up splitting. This is an obvious and rational assumption. Without transparent and sound subject - dependent consensus on adopting the single currency, the single currency zone has very fragile foundations.

And as no Empire, Reich or Superstate is here to stay forever, the European single currency zone is not going to last forever either. Unfortunately, the costs of such disintegration are going to be much higher than in situation where such a zone was originally based on the proven mutual profitability.

The European single currency zone is currently based on the fulfilment of a rigid political and ideological assignment. That's why the euro was founded. The single currency can be seen as just an economic tool for achievement of a political goal: create ceteris paribus a federal European structure without checking the fulfilment of the relevant economic, social, political and financial conditions.

Such a construction of the common European currency under any price then shows that the very end price to be paid will be really high. Obviously, it will be much higher than in the situation when the membership in the single currency zone was based on economic criteria of optimum currency areas.

The price of the Maastricht-like single currency zone can be expressed in terms of:

- lost output (GDP);

- higher unemployment;

- imported increase of interest rates;

- loss of fiscal sovereignty;

- and thus bringing economic, political and social discomfort with all possible aftermath to the instability of a country.

Defining the obligation of single currency adoption in the EU Founding Treaties looks like putting the carriage before the horse. Regardless of the possible absence of political will to give up the national currency, the EU Member States are expected and obliged to do so.

Those, who are already the 'members of the single currency club', could, of course, mutually compete in two different and directly contradictory disciplines. They may wish to be:

(i) the best students in the class, or;

(ii) the 'best free riders.'

Then, they become quite different reference groups.

(i) The single currency zone "best students in class:" the EU single currency zone Member State can, of course, benefit from the nominal privilege of being the best or one of the best countries complying with the Maastricht criteria. This can, of course, increase the overall position and reputation of such a country and/or its government. The capitalization of such a reputation is however a question of democratic accountability. Is this government listening rather to the interests of its own citizens expressed in the democratic process at the national level? Or are the members of government rather seeing their future personal benefits at the EU level?

(ii) The single currency zone ‚free riders:‘ the governments strongly dependent on its own citizens have, by definition, the disposition to hide the excessive public debts or state budget deficits by various methods of creative accounting and budgeting. Alternatively, they try to minimize the consequences and penalties for such debts and deficits, even when the common EU rules are violated. The cases of Greece, Italy, France, and even Germany bring forward very clear evidence.

The "best pupil" paradox: according to many observations, some EU Member States (best example may be the UK) are, according to the Maastricht criteria for the single currency, in a much better position then other states. The record of the UK is considered to be really exceptional - however, this country does not wish to become a member of the single currency zone, in fact a member of a class where this country is a best pupil. Is this striking? No, on the contrary, such a situation is clear evidence, that a country ready to refuse the Maastricht-like single currency commitments in the Founding Treaties is just a country with a strong democratic accountability of its national representation making its own decisions and clearly refusing to take the position of a passive object in some convergence programs and criteria.

If the country is a passive object of some convergence criteria and programs, it is loaded with a burden of tasks and obligations taking it towards the EU and single currency zone, and deprived of its independent power to decide whether or not to apply to the single currency zone.

Thus, the only way to eliminate these inherent deformations of the Maastricht – like single currency zone is to give back to the EU Member States their own sovereign power to be an active partner, enable the genuine subject willingly taking the responsibility for the completion of the SC commitments or willingly refuse such a project. The EU Member States should not have an obligation to explain to someone else why they refused to participate to the project of single currency zone. The democratic accountability of any EU Member State government should never be eliminated or by-passed by such a high degree (as in the Maastricht Treaty) of commitments for such a government.

The present construction of the EU single currency zone based on the provisions of the Maastricht Treaty is an example of unprecedented political experiment, not respecting the fundamental principles of democratic integration of the sovereign countries. The Maastricht single currency rules do not introduce a regular monetary integration. Rather, they represent a forced monetary unification from above, based on administrative, legal and institutional enforcement tools, not on the double coincident of needs of existing single currency zone members and the newcomers.

The Maastricht-like single currency zone has been built, so that the EU Member States are deprived of their basic sovereign right to decide whether or not the entry to the single currency zone is convenient for them. Without the Maastricht treaty, the single currency zone would perhaps exist sometime in the future, but definitely in a radically different form and based on absolutely different rules. What Maastricht Treaty does is to rigidly eliminate possible future SC zone elements, which would not be consistent and compatible with a federalist and unification model of an "ever-closer" EU. This single currency zone, based on the Maastricht Treaty, is here only to bring the EU federal State sooner to "the Europeans", even if the Member States citizens may not wish so.

The European Journal, May/June 2007

Michal Petřík

Adviser to the President of the Czech Republic

Ing. Michal Petřík, poradce prezidenta republiky

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