The euro? Will it still be around five years from now? Five distinguished thinkers offer their views.

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The cloud will not go away. Peripheral members are likely to drop off The big question mark is France.

SAMUEL BRITTAN

Columnist, Financial Times

It is not given to human beings to foresee the future. But the attempt to do so can often shed light on present problems. When the euro was launched, first as a unit of account in 1999 and then as an actual circulating medium in 2002, the driving force was political, not economic. It was seen by European leaders as a backdoor way of moving towards a federal Europe. Economists and businessmen, especially in Germany, were much more skeptical, but reluctantly went along. The big weakness of the project was seen to be the lack of a common fiscal policy to support it. This in turn reflected the fact that it was a currency with a central bank but without a government. Previous so-called currency unions were all ultimately based on a precious metal such as gold or silver. The euro is unique, backed neither by precious metals nor by a political authority. What is surprising is thus not the weaknesses brought to light by the Greek crisis, but that its market performance was above expectation for so long. Indeed, in the first decade of its existence, it rose by nearly 40 percent against the dollar.

As long ago as 1996, financial journalist David Lascelles produced a spoof futuristic account in which a member government ran into serious trouble, including riots in the street, when it attempted to introduce a fiscal austerity package in the face of a domestic recession, while the German government was prevented by domestic political opposition from taking a lead in a rescue package. ("The Crash of 2003," Centre for the Study of Financial Innovation). Like many such prophets, Lascelles was premature, as he dated the crisis to 2003, not 2010. More important, the country that he envisaged triggering the crisis was France. He could not imagine that the trigger to be pulled was Greece which, despite its romantic cultural affinities, is a long way removed from the present EU heartlands and accounts for little more than 2 percent of the EU gross national product. Indeed, Greece was hardly expected to become a member.

These very facts have given the Greek authorities more bargaining power than they perhaps have realized. The costs of contagion if the country were to default on its debts and leave the euro are very large. The ungainly acronym PIGS has been invented for the members most at risk--Portugal, Italy, Greece, and Spain. Portugal has already suffered a credit rating downgrade. The stakes are so high that the euro is likely to survive the present turmoil with Greece remaining a member. But the cloud will not go away. What has been so far lacking is any serious consideration of the Greek economy. The problem has been discussed very narrowly in capital market terms, with little analysis of whether the economy is overheated or faces deep recession. And there is not enough discussion of how far Greek costs have risen above the level of its euro partners. An "internal devaluation" involving a slashing of nominal wages by up to 20 percent, on Latvian lines, is difficult to imagine in the Greek case.

At some stage, peripheral members are indeed likely to drop off. In the long ran, the big question mark, however, is France. So far that country has exceeded expectations and managed to maintain cost competitiveness against its neighbors, but who knows how long this happy conjuncture will last? Without France, the euro will not disappear but become a central European currency based on the German-speaking countries and the Benelux.

But there is a deeper problem. Fashionably gloomy commentators are pessimistic about most major currencies. They point not only to the euro's travails, but to the supposedly grave U.S. and UK fiscal deficits. Against whom can all these currencies fall? Are the yen and renminbi to inherit the earth? This is the last thing the Japanese and Chinese governments want, owing...