A radically smaller euro currency zone

WI The 2002 euro banknote rollout was limited to France and Germany initially?

The current Greek debt crisis underscores one glaring fault of eurozone ambition: rapid expansion without a contingency plan for the tottering Mediterranean economies. I can see why the Germans and the British wanted Greece on board because of tourism. In hindsight, the inclusion of Greece was a risky gamble that failed in the end. Ditto Portugal, which is another favorite holiday spot for Britons and Europeans. Maybe inclusion of the poorer countries in the euro currency zone was convenient for the most wealthy European nations. This convenience came with a steep price that France, Germany, and Britain only now understand.

Let's say this were to happen:

1999: Many European currencies are pegged to the euro (i.e. the states included in the OTL 2002 rollout). France and Germany prepare to roll out banknotes in 2002 or even earlier. The countries that are pegged to the euro but not participating in the banknote rollout will not be able to denominate their debt in the new currency until the original ECB (Frankfurt) fiscal disciplines are met.

An ATL currency rollout:

2000 -- 2002: France and Germany roll out the common currency (banknotes and coins) between their countries.

[EDIT:] 2000 -- 2003: Within a year (or at the same time) as the French-German rollout the Netherlands, Finland, Austria, and Ireland join the euro currency. [thanks Monty Burns]

2009 -- 2012: Sweden, satisfied that the currency is stable, hops on.

2010: Greece has the economic meltdown at the same time as OTL. This time, the ECB and Germany do not have to intervene since the drachma is pegged to the euro but Greece's sovereign debt is still denominated in Greek currency. Greece defaults and requests aid from the eurozone. The Germans give some loans in combination with the IMF etc., but remind the Greeks that their default has pushed back their participation in the currency union for some years. [EDIT:] Since the Germans don't have to bail out Greece to protect the eurozone as in OTL, their debt relief to Greece is much smaller than a trillion dollar giveaway. [thanks vitemajoren]

2010 -- 2015: The ECB permits Italy, Spain, and Portugal to dual circulate the euro and national currencies. National debt is still denominated in national currencies. Italy, Spain, and Portugal set a ten-year self imposed deadline to rein in their national economies to ECB debt limits. The ECB agrees and provisionally sets their full eurozone entry for 2020 -- 2025.

What happens next? Could a limited eurozone benefit the wealthy European nations?
 
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Probably but this loan would it encompass
the same amount as in our timeline? I mean
that is a huge loan the Germans has extended, one
that it would take a very long time for Greece to repay
if ever.
 
The Netherlands, Luxemburg, Austria, Finland and most probably also Ireland would qualify from the beginning if France qualifies. Belgium actually did not fulfill all criteria IOTL, so Belgium would be out for a while.
 
You arte forgeting that another main purpose of the monetary union was to tear down all tarrifs and protectionism , the Eurozone is a big enough market for european industrial products on its own
 

Goldstein

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You arte forgeting that another main purpose of the monetary union was to tear down all tarrifs and protectionism , the Eurozone is a big enough market for european industrial products on its own

That's it. By the way, I cannot see any reason to delay the entrance of Italy so much, apart from a perceived economic inferiority of the Med countries. True that in the early 2000s the Italian economic growth was in a steady decline, but it was still an economic powerhouse, and too big of a market for not seeing the advantages of the Italian entrance and the injection of adjustement measures when the world economy was doing well.

Spain is an even more problematic case. It was a big market and a touristic powerhouse, but its economy was a time bomb (and I remember kind-of-accurate predictions for what has actually happened there starting as far as 2002). But the thing is, by the time the Euro standards were met and the countries were reviewed, it wasn't so obvious. By 1999, even the endemic problem of unemployement was correcting well, to a point people started to set full employement as a reachable goal :rolleyes:. Some Spanish regions (the most populated ones minus Andalusia) already exceeded broadly the average EU GDP, and the economic growth was above the leading economies. If we sum up a very strong banking system, and an illusion of dynamism, anyone that knew some economic facts beyond the "PIIGS" cliche, would have considered a stupid move not to include Spain in the first Euro implementation, even in this scenario. Not even a risky move, mind my words.

The problem? A great deal of the Spanish economic growth came from tourism and services (that resent considerabily in a global crisis scenario), and another great deal came from the real estate (which, apart from not being really productive and being linked to the Underground Economy, was the first to fall, leaving a lot of people without a job, and by a lot I mean A_LOT). If we add to the mix a total dependence on energy in a time in which the energy prices are rising, It's easy to see why now Spain is having a hard time to recover.

But then again, economists are not futurologists. They work on hypotesis, most of them rebuilt a posteriori. None of this was obvious in 1999. And even if it was, they wouldn't have put too much thought to the idea of a devastating global crisis.

The Portuguese case is fairly reasonable, though. In the late nineties its economic growth still looked comparatively weak, it has a level of institutional corruption hard to believe, and its economic standards... well, I'll just say that, even compared with those of Eastern Europe, Portugal's ones look "kinda meh". Being a country I love, its situation is qualitatively different to the Spanish, so I don't get why they would meet their standards at the same time.

So, what I want to say, is that by the standards of your challenge, Italy should enter in 2002 with a dual status, to turn into a full status after some minor adjustements, and Spain with full status (a move that the EU would bitterly regret, yes, but that would be done anyway)
 
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The basic assumption is wrong. Sorry, but the Euro was form the beginning a political, not an economical, project. The aim was not, grandstanding speaches aside, to improve the economic strength of EU, improve trade, make it easier for tourism (get a credit card, damn it) but to be a step on the road to an ever closer union*.

Just as paying farmers a lot of money not to grow food, and paying people to live in improductive areas (that is 75% of the EU budget) the Euro was seen as something that had to be done for the EU to continue, no matter the cost, risk or benefits. That everyone would cheat on the EMU criteria (3% budget deficit, 3% inflation, 60% national debt) was assumed from the first day.

If most EU countries aimed to improve the economy in a "real", sustainable way, they would have dropped their own currencies and adopted the D-mark. Not to mention avoiding inflation and deficits in their national budgets. Or invest in future industry, not pouring money over agriculture and airlines.

To achive the situation where the Euro was "real" it would demand a big POD. Maybe Helmut Kohl hit his head in 1985, lost his memory of everything before 1960 and therefore stopped being the doormat of Europe, saying "Hey, that we Germans elected a guy named Hitler is no reason for us to lower our standards to those of France or Greece. We won't pay for your inefficency and delusions any more." (in a more polite way, of course). So when a common currency started to be discussed Kohl would demand it to be hard as the D-Mark, or refuse to join.

Otherwise we would end up in todays situation, sooner or later. And it was totally clear by 1999.


* I don't understand why a closer union would be something attractive, but obviously a lot of people find it the most important thing in the universe.
 
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