The Bearable Lightness of the Euro

"It won't last." Since 2011, the year of the sovereign debt crisis, the belief was that the Euro's funeral will have to be celebrated sooner or later. A transversal thought (a wish, in certain political and social circles) that unites the ruling class and the man on the street. Quite a few times, in the last decade, the political design behind the single currency has been questioned. And there were not a few moments when citizens were tempted to hide banknotes in the mattress.

The varied family of Eurosceptics has always reasoned roughly like this: a single currency is not given without an authentically common fiscal policy. And, on the other hand, how can a single fiscal policy be implemented if the low debt European countries (Germany, in primis) do not believe that those with stellar debt (Italy, in primis) can behave in a transparent and honest way ? Can not be done. If, therefore, fiscal policy is a utopia, then let's prepare ourselves for the funeral of the euro. But the single currency is actually much more resistant than it seems. Antifragile, to use a neologism that designates the ability not only to resist adversity but to draw from it an unexpected lifeblood.

History teaches that political union is a formidable (and sufficient) glue for managing economic crises with an uneven impact on the components of the Union and keeping the Euro together. European politics, variously (and rightly) accused of late reactivity and lack of unity of purpose, has always been able to produce innovative and effective solutions, often copied from the rest of the world. Creativity nourished by a centuries-old tradition of composition of interests by the back door.

So, and to return to today's world, common sense would suggest having a system capable of directing resources from the center to the areas most affected by the current crisis; the state of the Union does not allow it but this, to continue in the funeral metaphor, is not the premise of the de profundis. Instead, it is yet another proof of knowing how to proceed by the back door.

Let's see why. Bonds are a liability for the State: no doubt. But also is paper money. In a world of interest rates close to zero, the difference between government bonds and money has blurred.

With central banks routinely buying bonds, the dividing line between fiscal and monetary policies is indistinguishable. Even in Europe, where everything has been done to keep the demarcation clear. The ECB's Quantitative Easing, de fact, mutualises the debt: a liability common to all (the currency) is exchanged for a fungible asset (the bonds of the individual States).

Establishing a fiscal union would have been the direct solution to achieve this result, but, through the back door, the implicit effect (sharing the burden) is very similar.

Political-institutional creativity does not make the Euro an impregnable fortress, but it certainly leads to consider that the real problems of Europe are others today, starting with the obsolescence of many industries (automotive) and the competitivness of the banking system. The Euro, therefore, is destined to live.


Simplify is an AIF umbrella fund, is authorised by CSSF in Luxembourg and passported in Italy and Sweden. The fund is managed in London.