Five theses about the Euro

Note kindly translated by Anne-marie de Grazia

The problems raised by the Euro are becoming ever more obvious in the context of demonstrations and mobilization in France against the so-called “Labour” law. It strikes one as evident that the economic foundation of this law is dictated by our participation in the Eurozone. From the moment that states are deprived of the possibility of adjusting their economic situation by the way of depreciation (or appreciation) of the exchange rate, and in the absence of any framework of significant budgetary transfers having been built beforehand, the adjustment effort cannot only be left to bear down on the work factor. This is the sad truth, which is profiling itself with increasing sharpness behind this “labour” law, the so-called El Khomri law, named after the Minister who was commanded to present it, without having herself taken part in its conception. The problem created by the euro can be stated in five points.


  1. The Euro is not a currency; it doesn’t correspond to a single political authority and political will based on popular legitimacy.

The Euro is a system which blocks relative trade between countries. It’s a regime of fixed exchange rates which is in fact akin to the gold standard. Therefore, there is no longer any flexibility. The countries no longer have the possibility to adjust their exchange rates. Which would be necessary, if one is taking into account the perfectly normal structural differences between said countries, and the absence of a European budget, that is, of transfer fluxes within the Eurozone.

There are two solutions to this. The first would consist in organizing massive transfer fluxes like those which exist within the economy of a single country. There is for instance a considerable heterogeneity between French regions, but it is all coming together thanks to net transfer fluxes amounting to 300 billion euros, whereas transfers at the European level amount to only a little bit less than 40 billion. One would therefore have to multiply these fluxes by 7 or 8, which would represent a considerable leap. Moreover, these fluxes would have to be paid essentially by those countries which profit from the Euro, just as in France these fluxes are mostly contributed to by the Paris Region and the Valley of the Seine. This does not raise problems in France, because we are all French and redistribution between regions appears to us normal, but when it comes to the Eurozone, it means that one would have to wrench off between 8 and 10% of the GDP of Germany in order to transfer it to Greece, Spain, Portugal, Italy, even France. However, we cannot ask this of the Germans. It is not even a matter of knowing if they would agree to do it. They cannot do it. It would destroy their economy.

The other solution consists in organizing competitive internal devaluations. This is the road taken by the Eurozone since 2010. Concretely, it amounts to applying in our country the suicidal policy which Brüning applied in Germany between 1930-1932. It was this policy which provided the fertile ground for Nazism, not hyperinflation. And it is good to remember that it was carried out in the name of the salvation of German banks. The latter were indeed salvaged, but at a monstrous price in terms of employment and social misery. These policies of internal devaluation are the very same ones which are presently being implemented: a nominal decrease in social benefits, whether unemployment benefits or retirement pensions, and a decrease in nominal wages by way of various tricks. These policies throw the countries which are practicing them into a logic of competition which is profoundly destructive to the European economy. For instance, we are hearing a lot about a Spanish recovery. Not only should one be very careful on the subject, but one must also understand that this recovery is taking place at the detriment of France and Italy.

Finally, we must remember the statement of the Court of Karlsruhe in 2011, namely that there are European peoples, but that there is no “European People,” and that it is within a national framework that democratic processes are actually being played out. In other words, a federal system would create an enormous problem of democracy.

2. The Euro, as a result, is a factor of recession, both structural and in the short-term.

It is also a factor of regression for, when one prevents adjustments from being implemented by way of the exchange rate, these adjustments take place by the way of unemployment which, by depressing the general level of activity, produces more unemployment. The vote of the TSCG by the French Parliament in October 2012 locked down this state of affairs, by taking away from the states the possibility to carry on adapted budgetary policies. In fact, as can be seen in the figures, growth in the Eurozone has been far weaker than in the countries of the European Union which are not members of the Eurozone. There has been, between 2000 and 2015, a gap of ca 1% per year, amounting to a gap of 17% over the whole period. It’s a fact, and it’s a significant one.

Table 1

Comparison between growth in the countries of the Eurozone and 5 other countries of the OECD

GDP in 2015, index 100= 1999 Average growth rate over 1999-2015 Average rate over 1999-2007 Average rate over sur 2008-2015 GDP by inhabitant in 2015, index 100=1999 Average growth rate of GDP by inhabitant 2015
Belgium 125,6% 1,43% 2,23% 0,6% 114,1% 0,8%
Finland 128,2% 1,56% 3,73% -0,6% 118,0% 1,0%
France 122,2% 1,26% 2,11% 0,4% 111,3% 0,7%
Germany 121,5% 1,23% 1,64% 0,8% 122,7% 1,3%
Greece 104,7% 0,29% 4,07% -3,4% 103,6% 0,2%
Italy 102,9% 0,18% 1,48% -1,1% 97,2% -0,2%
Netherlands 121,6% 1,23% 2,28% 0,2% 113,6% 0,8%
Portugal 106,2% 0,38% 1,52% -0,8% 104,3% 0,3%
Spain 130,6% 1,68% 3,74% -0,3% 112,4% 0,7%
Total 9 countries of the Eurozone 119,1% 1,10% 2,18% 0,0%  
Total without Germany 118,1% 1,05% 2,40% -0,3%  
Canada 142,3% 2,23% 2,80% 1,7% 120,5% 1,2%
Sweden 140,2% 2,14% 3,24% 1,0% 126,4% 1,2%
United Kingdom 134,9% 1,89% 3,00% 0,8% 122,0% 1,1%
United States 137,5% 2,01% 2,65% 1,4% 119,5% 1,2%

Source : data base of the IMF

At this point, one must dare look things in the face: the great European projects were the fruit of a cooperation between countries, but not of the European Union itself. Airbus was not created by Europe. It is a consortium born from a French-German cooperation, joined by the Spanish and the British. The Ariane rocket is not a European project, it is, again, a project born from the cooperation between France, Germany and the United Kingdom, onto which France managed to impose through a forcing, in 1971, the necessity of a master-mind, in order to put an end to the repeated failures of the Europa rocket. All these great projects were successes because they were carried by the political will of a country, not by a sum of bureaucratic wills in Brussels. In the same way, CERN has an existence far pre-dating the European Union. It is therefore perfectly possible to coordinate, and even better, to cooperate on, big industrial projects, without the European institutions, and even more, without the Euro. On the other hand, what we can notice, is a drop in investments since the implementation of the Euro.

Table 2

Drop in productive investment

Global investment Investment per inhabitant
2015 level in percentage of 1999 Average annual growth rate 2015 level in percentage of 1999 Average annual growth rate
Belgium 120,8% 1,2% 109,8% 0,6%
Finland 114,9% 0,9% 107,9% 0,5%
France 122,9% 1,3% 111,9% 0,7%
Germany 96,2% -0,2% 97,1% -0,2%
Greece 47,2% -4,6% 46,7% -4,7%
Italy 77,2% -1,6% 73,0% -2,0%
Netherlands 97,0% -0,2% 90,6% -0,6%
Portugal 53,6% -3,8% 52,6% -3,9%
Spain 100,5% 0,0% 86,5% -0,9%
9 EZ countries 98,3% -0,1% 92,5% -0,5%
Canada 163,2% 3,1% 138,2% 2,0%
Sweden 157,8% 2,9% 142,2% 2,2%
United Kingdom 123,8% 1,3% 111,9% 0,7%
United States 120,2% 1,2% 104,4% 0,3%

Source : data base of the IMF

That the Euro is a factor of structural recession was known before the financial crisis of 2007 already. In a work published in 2007, and written shortly before, several economists showed that the euro is a factor for braking growth at the world level. [1] Indeed, the Euro is a factor of recession in several countries and, besides, generally weakens demand in the whole of the Eurozone, bearing down considerably onto the world economic situation. We notice that, since the early 2000s, the aggregate growth of the Eurozone countries is significantly inferior to American growth, to British growth and to the growth of the other OECD members which do not have the Euro. So that one may attribute to the Euro part of the unbalances which have come to light since 2007.

The Euro is also a factor of short-term recession. “We must save the Euro»: it’s because of this slogan that austerity policies have been imposed on a whole series of countries, which have directly aggravated the crisis, be it in Spain, Greece, Portugal or Italy. Concerning Italy, for instance, we must be aware that the recent crisis of Italian banks stems essentially from an accumulation of bad debts, which are not connected with real estate, but are linked for up to 90% to business debts, of small companies which have been destabilized by the recessive policies carried on during the past years. The Renzi government is desperately trying to jump-start the economic engine, but he is presently forced to confront the problems inherited from the past, in the shape of the much degraded balance sheets of four or five banks (there is talk of over 400 billion euros in bad debts), which has caused a heavy drop in shares in Milan. The Euro is adding a crisis to the crisis. Granted, between 2000-2001 and 2006-2007, France has known a growth superior to many countries in the Eurozone, notably Germany, but why?

  • The strong depreciation of the Euro during these years, which was to France’s advantage.
  • The breadth of exonerations of social security contributions. This system is not just, in that it profits mostly to large companies, and it creates a whole series of problems, but there we have it. And if France has had a growth superior to Germany’s, it is only through constantly reinforcing this system of exonerations, in other words, giving back to companies with one hand what one was taking away from them with the other, in order to offset the euro.
  • A relatively expansive budgetary policy during the period, which had positive effects, but also brought along a considerable worsening of our public debt.


3. The Euro is a factor of financialization of the economy.

It allowed Germany and France to achieve said financialization as far as they were concerned. But paradoxically the Euro is not, in the same time, capable of resisting a financial crisis. One can see very well that the operating rules of the ECB, and the rules which have been internalized in various countries, aim at making out of financial activities the real pivot of economic activity. This is profoundly unhealthy. I am in the process of working out for the Russians a possible restructuring of their financial system and, for my part, I am a partisan of a return to forms of interventionist controls over finance. Some are calling this “financial repression,” but it makes no sense. One can talk of repressing individuals, or populations. When it comes to finances, it’s simply regulations. However, implementing a regulation of finances, which should be done not only in France but also in Europe, is not possible within the framework of the Euro. Wanting to rule over finances is incompatible with the operating rules of the Euro.

We must here remember that financialization tends to reduce financial actors to short-term, even very short-term reasoning. There has been a very important debate on this subject between von Mises[2] and Neurath in the 1920s. From this debate was born the theme of the “Neurath planning,” of a socializing tendency, about whether one should decide to produce electricity hydraulically or with coal-fired plants. Von Mises, defending a liberal position, argues that it suffices to look at the marginal cost of capital, and the solution will look one in the face. For Otto Neurath[3], on the other hand, there exist hidden costs which are not immediately apparent, but which will reveal themselves 20 or 30 years down the road. For instance, the cost of silicosis for the minors, the cost of pollution produced through burning coal, etc. One therefore needs a political decision, in this case making a choice between coal and hydroelectricity, because this political decision will create its own conditions of economic validation. This is the reason why Neurath favored economic planning. And it is today one of the major problems confronting us, but we will only be able to solve it if we get ourselves out of financial globalization. Incidentally, and paradoxically, Hayek, in his 1945 paper on knowledge[4], agreed with O. Neurath against von Mises, as shown by J. O’Neill[5].

The major problem caused by financialization is the one of the loss of implicit or tacit knowledge [6], which plays a very important role in the relation between borrower and lender, from the moment that the lender is engaged in an entrepreneurial project. A register, such as the one being implemented between the banks of the Eurozone, however perfect it may turn out to be, is not able to provide the totality of the necessary information needed for a lender to commit himself to a borrower. For this reason, direct or indirect contact between the borrower and the lender remains essential. Why do you think that business jetting has developed so greatly during the past 40 years, if not in order to uphold this direct and personal link between the big borrowers and the big lenders? It presents a problem, if one wishes to unify a capitals market. It is also crucial for countries of a very large size, and it is for this reason, notably, that these have local and regional banks. One can then link these banks into a network, subordinate them to a central body, as was the case with the old Crédit Agricole. But, particularly for the small and medium companies, it is important to keep up the contact, this particular form of knowledge which no register can include. This means that if it is judged important, at the macroeconomic level, to have at least a partial unification of capitals market, then this partial unification should preferably take the shape of national investment banks, capped, if need be, by a European-level body offering them better refinancing conditions. This is one of the reasons which make the existence of a system of bank- and financial regulations absolutely indispensable. However, as it happens, such a system is presently contradictory with the existence of the Euro. If one wants to get out of financialization, one must be determined to get out of the Euro.

4. The Euro is a war machine profiting of Germany

This is a reality which may be disturbing but one which must in the end be confronted. To say this doesn’t in any way imply germanophobia, but a realistic recognition of the project advanced by the German political and economic elite. It is the Euro which permitted Germany to profit since 1999 of a currency that was largely depreciated in relation to what should normally have been the exchange rate of the Deutsche Mark. Studies which have been carried out on this question leave no room for doubt: if the Euro did not exist, the exchange rate of the Deutsche Mark would presently hover between 1,35 and 1,50 $, whereas the Euro is at 1,08 or 1,09 $. Even more importantly, the Euro guarantees Germany that the countries of the Eurozone with which it is trading will not be able to adjust their structural differences by means of depreciations. Yet depreciation is an essential economic mechanism: countries have differing logics for cost formation, and it is necessary that at certain moments their relations be rebalanced by the means of the exchange rate. The policies of internal devaluation lead to policies of competitive devaluations which are in reality worse in their effects than the former, because they combine considerable destructive effects upon the domestic economies. Yet it would be possible to arrive at forms of coordination if one found back to the flexibility of the monetary instrument. One could then agree to figure out by how much some countries must devaluate or re-evaluate their currencies, that is, one can implement methods of coordination.

And yet, it is true that Germany has considerable needs in community facilities. Not only for the migrants. Part of the German railway system, of the bridges, are falling apart. But in the same time, the arrival of over a million persons will drag down wages. Granted that there will be a minimum wage, we can nevertheless be sure that in the five years to come, the proportion of persons who will be paid minimum wages will increase very sharply. Whereas minimum wages were conceived in the beginning as a base level which should concern only 10 % of wage earners, the proportion will be of 25 or 30 %, which will continue to drag down wage costs, as well as domestic demand.

5. The Euro is today a factor of major conflict in Europe.

It is the main reason in the rise of antagonisms between European peoples. It suffices to go to Athens, Rome, even Spain, to measure at what point the feelings of the peoples, one for another, has profoundly degraded during the past three or four years. One can hear today in Greece and in Italy things said about the Germans corresponding more or less to what was being said about them in the 1950s. Beyond the economic questions, there is now a truly political problem: how to make Europe survive. Except that the survival of Europe (which we must dissociate in this case from the European Union) can only occur through the dissolution of the Euro. Maybe it is already too late today to « save » the EU, as can be seen with the disintegration of the Schengen accords. And it is true that the EU now carries the indelible mark of anti-democratic policies in various countries. But the European spirit, this reconciliation of the peoples, which does not neglect the fact that states as well as peoples can have diverging interests, must be preserved. However, this will not be possible if we are keeping the Euro.



[1] Bibow, Jörg et Terzi, Andrea (dir.), Euroland and the World Economy, Londres, Palgrave MacMillan, 2007.

[2] Von Mises L. (1921), “Economic calculation in the Socialist commonwealth”, publié initialement en allemand in Archiv für Sozialwissenschaften und Sozialpolitik , vol. 47, avril 1921, reproduit in F.A. Hayek, Collectivist Economic Planning , Routledge, Londres, 1935

[3] Neurath O., Empiricism and Sociology, Cluwer Publishers, Dordrecht, 1973

[4] Hayek F.A., « The Use of Knowledge in Society », in American Economic Review, , vol. 35, n°4/1945, (September), pp. 519-530

[5] O’Neill J. (1996), « Who won the socialist calculation debate », in History of Political Thought, vol. XVII, n°3, fall 1996, pp. 431-442

[6] Polanyi M., The Tacit Dimension, Univ. of Chicago Press, 1966.


Jacques Sapir

Ses travaux de chercheur se sont orientés dans trois dimensions, l’étude de l’économie russe et de la transition, l’analyse des crises financières et des recherches théoriques sur les institutions économiques et les interactions entre les comportements individuels. Il a poursuivi ses recherches à partir de 2000 sur les interactions entre les régimes de change, la structuration des systèmes financiers et les instabilités macroéconomiques. Depuis 2007 il s'est impliqué dans l’analyse de la crise financière actuelle, et en particulier dans la crise de la zone Euro.

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