The single currency is a reality for most European countries but unity is a distant dream. Willem Wolters sees trouble ahead if more power is wrested from proud nation states.
On January 1, euro notes and coins became legal tender in all the European Union states, bar the United Kingdom, Denmark and Sweden. Fifteen billion banknotes and 50 billion coins are being distributed among the more than 300 million inhabitants of the 12 member states of the euro zone over a period of a few weeks. National currencies will be completely replaced by the euro within a couple of months.
The euro is a currency without a nation-state. The European Union is not a superstate or even a federal state, and it will not become one in the foreseeable future. The 1991 Maastricht Treaty gave the union control over some policy areas, but sovereignty remains largely in the hands of the national governments.
The idea that each nation-state has its own currency has been accepted wisdom since the second half of the 19th century. Viewed with a longer historical perspective, however, the euro represents, in some respects, a return to an older state of affairs. Before the second half of the 19th century, currency circulation across territorial borders was possible because money consisted of coins made of precious metals (gold and silver), which derived their worth from the intrinsic value of its metal content. Although these coins were often minted by political rulers, they could not be considered state money, as no government could guarantee the value of its currency outside its own borders. Traders and individuals handling these coins had to evaluate and determine their value independently, by weighing and inspecting them. Paper money was not generally trusted and bills of exchange were used in international commercial circles on the basis of trust and reputation and under the supervision of the Bank of England and London merchants. This system had severe limitations because paper substitutes were not acceptable among the wider population and cash transactions in space and time were well-nigh impossible.
The emergence of territorial currencies was part of the formation of nation-states and the rise of nationalism that occurred in the 19th century. It went hand-in-hand with the political unification of countries, the centralisation of governments and border controls. In 1861, Italy was politically unified and a year later a new coinage system was introduced based on the lira of Sardinia. In 1871, the German Reich was formed and a year later the Reichsmark was introduced as the unit of account. Territorial money was state money, and as the state promised to guarantee the value of the currency in circulation, gold and silver coins could be replaced by paper money and token money, that is, coins made of base, rather than precious, metal.
National monetary systems had several functions. They opened the way for the creation of new forms of money, more adapted to the changing socioeconomic structure of industrialising countries, such as paper money, bank deposits and cheques. The new currencies constituted national symbols, giving a sense of national identity to the people. Coins had traditionally carried the effigy of a monarch, guaranteeing their authenticity rather than their value. Now banknotes also carried the portraits of monarchs or historical figures, as well as emblems of national power. National currency systems provided governments with the instruments to collect taxes more efficiently and to carry out macroeconomic policies, which insulated the nation, to some extent, from foreign political and economic fluctuations and shocks.
Territorial currencies were not only symbols of national identity, they were closely associated with a whole range of policies and practices in nation-states aimed at homogenising the population, including national education systems and standardised national languages, both of which enabled job mobility.
They also altered the perception of what constitutes money. Around 1900, economists and politicians still adhered to the view that only precious-metal money was real money. Money authorities for a long time maintained the illusion that paper money represented real money or gold, with the inscription: "The Central bank promises to pay the bearer on demand the sum of..." It was only much later in the 20th century that most countries removed this sentence. Paper bills and token coins were no longer representations of an imagined real form of money. They themselves had become the real thing.
It is remarkable that the populations in these countries gradually transferred their trust to the new system and the Central Bank authorities and that they have kept that trust, despite the monetary history of the 20th century, which has seen hordes of people lose their savings. The monetary system is based on a huge belief system that is constantly renewed despite earlier disappointments.
The European Monetary Union does not, however, have the characteristics of the 20th-century European nation-states. The continent is, in socioeconomic terms, highly diversified, with pronounced differences between prosperous regions and backward ones. Economic shocks will affect these regions differently. Ways of equalising these differences are extremely limited. Language and cultural differences form powerful obstacles blocking the free movement of labour. Educational systems are still highly diversified. The European institutions do not have the power to transfer funds from one region to another. As many observers have already noted, the continent is far from an optimal currency area. The only instrument the European Central Bank can use to manage the new currency is the general interest rate. It is likely that uneven development in the union will create political tensions and conflicts in the future.
Moreover, many people in the EU view the demise of their national currencies and the arrival of the euro with regret. The fact that names such as the peseta and the guilder, some of which date back to the Middle Ages, will no longer be used, fills many with nostalgia. The national currencies, though of more recent origin than their names, are powerful symbols of national identity. Many people will keep a few coins and banknotes as memorabilia. On the internet, the trade in old coins and banknotes has increased over the past few years. In several countries, clubs of friends of the old monetary unit have been formed.
Despite all the official euphoria about the euro then, the transition epitomises one of the basic dilemmas of the EU. People have only a vague feeling of belonging to Europe. National loyalties are stronger than loyalty to Europe. The EU is a technical and technocratic affair that does not capture the imagination. It is also a highly undemocratic structure. The nation state is still the main area of democratic representation. There is hardly any pan-European political activity and the democracy of the nation-state cannot easily be transferred to the supranational level. The policies that the EU has thus far carried out will gradually erode the nation-state. This might be dangerous. If people are deprived of their national symbols, disappointed in their nation-states and lost in a technocratic and undemocratic Europe, they may grasp for other primordial attachments, such as ethnicity, communalism or religion.
Willem Wolters is professor of economic anthropology at Nijmegen University, the Netherlands.