Τετάρτη 21 Μαΐου 2014

Embattled Economies Cling to Euro


12/2/2013

By Marcus Walker and Alessandra Galloni

The euro remains popular across much of Europe even though it has left many of the region's economies struggling to compete. WSJ's Alessandra Galloni looks at why many Europeans shudder at the thought of abandoning the common currency. Photo: Reuters

MONFORTE D'ALBA, Italy—The euro has weighed on winemaker Elio Grasso for years. The currency's high exchange rate shaves into profits of his U.S. exports, while his domestic customers suffer in Italy's long recession.

But the silver-haired maker of Barolo wines doesn't want Italy to abandon the euro. "If we were on our own, we'd have bigger problems than Greece," he said in the cavernous cellar below his vineyard.

Europe's common currency has left the continent's southern countries depressed, indebted and struggling to compete internationally. But even in the tumult of Italy's national election campaign this month, the question of euro membership isn't being seriously debated. In Italy, as in Spain, Portugal and other crisis-hit countries, popular support for the euro remains strong.


Across Europe's southern rim, people recoil at the idea of returning to national currencies, fearing such a step would revive inflation, remove checks on corruption and derail national ambitions to be part of Europe's inner circle. Such fears outweigh the bleak growth outlook that has prompted many U.S. and U.K. economists to predict a split of the currency.

Only 20% of Italians say leaving the euro would help the economy, compared with 74% who believe it would be bad or disastrous, according to a recent survey by Milan-based opinion-research group Ispo. Strong majorities in Spain, Portugal, Greece and Ireland also reject an exit from the euro, recent polls show.

Europeans' determination to stay in the common currency will play an important role in how the euro crisis unfolds this year. As Europe's financial-market panic subsides, the euro's survival relies on countries enduring a painful, lingering economic retrenchment.

Italy's center-left party, which is leading in polls, promise to maintain the austerity measures required to defend the country's place in Europe. Even conservative ex-premier Silvio Berlusconi has toned down his anti-euro rhetoric ahead of the Feb. 24-25 national election.


Roberto Colombo, who runs the 400-person factory of chocolate maker Caffarel at the foot of Italy's Alps, said recession-hit Europeans have been skimping recently on the company's pricey pralines. But, he said, Caffarel remains as upbeat about the euro as it was more than a decade ago, when the company celebrated its birth with a chocolate bar resembling a €500 note.

"The euro has forced companies to show what they're made of, to be competitive without the helping hand of devaluation," said Mr. Colombo. "Italy without the euro would be far worse off."

Popular will to stay in the euro doesn't guarantee that no country will leave. Political paralysis or bank runs could, in theory, force a country to print its own currency to avoid financial collapse.

Nor does popular support make the euro a success. Europe's plight has resurrected old warnings that a single currency spanning disparate national economies can lead to crises, as well as make it harder for countries to escape trouble.

Experience suggests recovery from a financial crisis can be easier if a country devalues its currency, making its goods cheaper abroad. The only option for struggling euro-zone countries, by contrast, is to push down wages and prices relative to the euro's core economies. The process will likely add years of hurt to regions of Europe already five years into a downturn.

Many southern Europeans are disappointed with the European Union's institutions and leaders, and bitter about the effects of austerity medicine. But the euro has escaped the backlash.

"Europeans who now use the euro have no desire to abandon it and return to their former currency," according to a survey by the Pew Research Center. In Spain and Portugal, 70% or more of people want to stick with the euro, recent polls found.

Even in Greece, where the economy and employment have shrunk by more than 20%, just one in five people wants the drachma back. Even supporters of radical anti-austerity party Syriza mostly oppose leaving the euro.

Antipathy to the euro has risen strongly in European countries that didn't join it. The currency crisis has strengthened the conviction of Britons, Swedes and Danes that they were right to keep their own currencies, the EU's regular Eurobarometer surveys show.

But many Italian voters say that, despite the current pain, dumping the euro would be a leap in the dark.

"The answer is not to throw the euro out, it's to look at what's not working and fix that," said Giovanni Ricci, a geologist from Turin. "If we all returned to national currencies and devalued, you would get a trade war in Europe."

Mr. Ricci helped build the first stage of a high-speed rail tunnel under the Alps that will connect Turin with the French city of Lyon. For him, the euro also marks Italy's attachment to Europe, which he sees as his country's best hope for long-range growth. "You've got to stay part of core Europe," he said.


The recent history of countries in the euro-zone periphery helps explain their resilient support for the European project.

Spain, Portugal and Greece all escaped dictatorship in the 1970s. Joining Europe's economy and institutions helped cement democracy and raise living standards. European ties helped them overcome decades of backwardness and isolation. Ireland's democracy is older, but European largess is strongly associated there, too, with economic transformation.

The crisis has dealt a blow to Europe's rosy image in such countries as Portugal, but "the cultural association of Europe with modernization is still there," said Antonio Costa Pinto, a political scientist at the University of Lisbon.

Spain, with its regional divisions and bitter legacy of the Franco dictatorship, "has constructed its democratic, contemporary identity on the idea of Europe," leaving the country with "no Plan B," said Antonio Moreno, a Spanish historian at Madrid's Complutense University.


In all of the crisis-hit countries, distrust of domestic politicians and government bureaucracies is a potent reason why few want to leave the euro. Most people believe their national leaders, acting without the yoke of the euro, would make an even bigger mess of national economies.

Regular corruption scandals, such as the slush-fund allegations currently shaking Spain's ruling party, have reinforced popular suspicion.

"Returning to the drachma, lira or peseta would mean giving economic power to the most discredited group of all," said Jacob Funk Kirkegaard, a scholar at the Peterson Institute for International Economics in Washington.

Nowhere is this more heartfelt than in Italy. The euro is more than a currency: It is the strongest symbol of belonging to Europe, a relationship that many Italians hope can teach them better governance. Italy has had 58 governments in 65 years, frustrating efforts to fix the country's stifling bureaucracy, chronic tax evasion and recently stagnant business sector.

Even Italian politicians refer to Europe as a beneficial vincolo esterno, a shackle on lawmakers. Italians' trust in the EU has slipped to 40% in the recent Ispo survey, down from 57% in 2010. But over the same period, the survey found, trust in Italian political parties fell to 4% from 13%, largely because of chronic scandals.

Mr. Berlusconi currently faces separate trials on charges of tax fraud, underage prostitution and abuse of office; he denies wrongdoing. His conservative party and its ally the Northern League are embroiled in expenses scandals, as is the left-wing Italy of Values party. An unfolding banking scandal threatens voter support for politicians on the center-left, some polls show.

The hope that Europe can discipline the unruly country is voiced widely here in the northern region of Piedmont, a hub for Italian exports, including food and cars, and a battleground in this month's election.

"We haven't done as well under the euro as Germany has because we're not led by people who are able to bring the potential benefits to Italy," said Mr. Grasso, the winemaker.

The 69-year-old Mr. Grasso has seen the misty hills of Piedmont's wine country transformed from poverty into a wealthy center of production and tourism. As the Barolo brand has grown, exports to the U.S. and Europe have paid to equip his state-of-the-art underground winery, which is dug into the hillside beneath the family farmhouse.

He said his success has been a battle against the Italian bureaucracy of permits and inspections. "I even have to prove to inspectors that specks of paint on my ceiling won't fall into the barrels," he said.

Instead of Italy's thicket of often-ignored red tape, he said, "we need fewer rules, but strict enforcement," like in Europe's north.

Turin, Piedmont's capital, has suffered a steady erosion in manufacturing, especially car making, centered on Fiat. The industry's problems began well before adoption of the euro, when the fall of the Berlin Wall intensified global competition. A high exchange rate under the euro compounded the pressure.

For decades, Italian industries kept pace with foreign rivals through periodic declines in the lira, which made Italian goods cheaper to export and offset the relatively brisk inflation of Italian wages and other costs.

After the euro removed Italy's ability to devalue its currency, inflation remained slightly but persistently higher than the euro-zone average. Wages rose faster than productivity. In contrast, German industries carved out a competitive advantage partly through strict cost control.

In Turin, Fiat's giant Mirafiori car-assembly plant has suffered. When Italy joined the euro, Mirafiori had already shrunk from the postwar era, when it employed tens of thousands of workers. The plant now has barely 5,000 workers. Since last fall, work on the assembly line is limited to a few days a month.


"It's a desert," said Antonio Alfiero, a veteran assembly worker and union organizer at Mirafiori. Fiat now prefers to invest in Serbia or Brazil. The problem, he said, is Italy's lack of industry-friendly policies, and Fiat's habitually poor industrial relations. He said he wished Italian management and unions could cooperate as they do in Germany.

"There's a great fear among the workers," Mr. Alfiero said. "But it's not the fault of the euro."

Not everyone agrees. The euro has brought "a progressive decline of the market share of Piedmontese industries versus German companies," said Roberto Cota, president of the Piedmont regional government. His Northern League party, a junior ally of Mr. Berlusconi in the election campaign, is lukewarm about the currency.

"We don't say we want to leave the euro," Mr. Cota said. "We say it would be good to have a referendum."

Italy's anti-establishment Five-Star Movement, led by popular comedian Beppe Grillo, also wants a referendum on the euro. But even Mr. Grillo rails more against Rome than Brussels. Opinion polls give the party about 15% of the national vote, and 81% of Five-Star supporters say leaving the euro would be negative for Italy, according to Ispo surveys.

To many in Turin, going back to a weak national currency smacks of reviving a bad habit that had lost its appeal.

"The policy of lira devaluations was slovenly," said Guido Martinetti, a 38-year-old co-founder of Grom, a trendy ice-cream company.

By removing the pressure to reform Italy, devaluations allowed dysfunctional politics and bureaucracy to fester. "It was a policy that neglected future generations," he said.

Mr. Martinetti said he doubts Italy would have been able to finance its huge national debt with a sinking lira and high interest rates: "I think the euro saved Italy."

Πηγή

Σχετική δημοσίευση εδώ.

Δεν υπάρχουν σχόλια:

Δημοσίευση σχολίου