The Introduction of the Euro
In 2000 the euro was introduced into Europe as brand new currency. Its aim is to unite the countries in the European Union and improve trade and economic growth across the continent. The evidence, sadly, shows us that this was far from a success. Below we use data from the world bank showing annual GDP growth in percentages compared to the previous year. The EU overall performs poorly.
Review the Data
Note that the chart shows the entire EU, not only the Eurozone. This is our baseline for comparison for the other countries.
The biggest European economy is Germany, depicted by the dark blue / purple-ish line. Right after the Euro is introduced, we see Germany’s growth taking a hit. As funds are diverted to south-European countries, that suddenly have a stable currency, funds are flowing away from Germany. Investments are being made in the south, instead of the north. Germany’s economy and economic growth is admirable only when compared to other euro-countries.
The pink line is the Czech Republic. The Czech Republic does not use the Euro, but in the early 2000’s we see a huge economic growth. It is followed by a big hit when the crisis hits, where the Czechs follow closely the EU-average for a few years. Unconstrained by the Euro, the Czechs are able to recover quicker and by 2014 their growth is well above the EU-average again.
Poland has the green line. Again, they do not have the euro, using their own currency instead. Poland is far above the EU-average for the entire duration and is barely affected by the crisis. In fact, Poland’s economic growth during the crisis is on the same level as the EU-average during the good years before the crisis hit. After the crisis happened, Poland stays far above Germany and the EU.
How about the countries that did adopt the Euro?
Again we have the EU-average plotted as a benchmark to compare the others. The graph is the same as before, however having 7 lines in one chart would have made it too difficult to read. The countries discussed here are Spain, Italy and Greece.
Here, our dark blue line is formed by Italy. Since the launch of the euro their growth lags behind the EU-average, and this continues after the crisis has hit. There are no apparent benefits for Italy by having joined the euro.
Our pink line is Spain. Spain experiences relatively strong economic growth before the crisis, higher than the EU-average. As soon as the crisis hits, Spain is hit the hardest. It has negative growth until 2014, after which it catches up after years of severe decline and rises above the average.
Greece is the saddest of our sample. The introduction of the euro introduced strong growth to Greece. Undoubtedly the renewed access to funds allowed the Greek economy to flourish. Regrettably, any gains were offset by the deep crash that Greece experienced after 2008. Their economy shrank with 9% in only a year, and has been reduced by around 25% overall since 2008. Although the economy appears to be somewhat recovering in recent years, it has been a severe beating.
The data serves as a reminder on the impact of the euro on the economies of Europe. The single currency takes away the ability for countries to devalue their currencies, and thereby increase exports and boost their economy. The crash of 2008 was the first real test of the currency, and the euro failed the test. Lack of flexibility has taken away their options, and this has an immediate effect on their economic growth.
So what did we see in the data? Non-euro countries outperformed the average EU score, showing robust growth and a relatively speedy recovery after the crash. The euro-countries on the other hand, they struggled. Their recessions were longer, and deeper, than they could have been without the euro.
The purpose here was to place the non-euro countries next to the euro-countries, to show the differences in economic performance. The burden of proof then lies with the proponents of the euro to show why the people of Europe should be grateful for the currency.