Book project: Next Europe

Francois Heisbourg: ‘Walk back the euro to save the EU’

For a couple of (off-the record) interviews I headed off to Paris. There I met Francois Heisbourg, the ‘ardent European federalist’ who has sparked controversy with his latest book La fin du rêve européenHe claims that to save the European Union, we must dismantle the eurozone and re-introduce national currencies. For someone who is pro-European like Heisbourg, that is a remarkable statement.

His career was all about Europe, strategy, defence and the world. Aged 63, he is in all the élite places of the international policy world: special adviser at the Paris-based think tank La Fondation pour la Recherche Stratégique, Chairman for the International Institute for Strategic Studies in London, and of the Geneva Centre for Security Policy. And from this intellectual platform he now proposes to give up the euro for at least two decades.

Why has Heisbourg become so hooked to the European project? ‘I fell into the kettle like Obelix into the magic potion when I was a baby. It has always been a part of the thematic in which I lived. I was part of a Jacques Delors think tank called Notre Europe, and I was involved in the discussions on the three European referenda in France. What has played a major role in my current excursions is the global financial crisis, which has of course major strategic implications but also devastating effects on European prospects.’

Heisbourg3When things started to go badly wrong
According to the researcher, Europe has missed several crucial opportunities to create a federal Union. And this step was necessary to what he calls ‘get the underpinning for the euro.’ ‘We always took the wrong fork as we went down the road. First the Maastricht Treaty (1991). That was the upmost that the French body politic at the time could bear. It’s past with barely 51% at the referendum. Mitterand had to work very hard to get it past – most of the mainstream right was against the treaty! Part of Chiracs election platform in 1993 was to have a referendum on the single currency, with the hope of course of destroying it.’

The second chance was the European-wide (but rather elitist) ‘Convention’ which had the outcome of a Constitutional Treaty. But two referenda killed the treaty – first in France and then in the Netherlands. ‘So exit the Constitution. This ensured that we were not able to build up the foundations for a federal Union.’

Things started to go badly wrong even before the euro existed, says Heisbourg. ‘Cheap money became a reality, with the markets considering rightly or wrongly that this was a currency which would be guaranteed by the German Bundesbank. And Germany sold the currency to its own population as Stark wie die Mark. That reinforced the attitudes of the markets.’

Forget about Greece – save our banks!
Three years later, the financial crisis broke out and quickly the interest rates within the eurozone started to diverge, showing a distrust of the markets in the strength of the eurozone. The Greek situation, where debt was mounting, was the big test case. And we failed, claims Heisbourg. ‘If the Greek issue had been dealt with before it became an open crisis in early 2010, maybe we would not have noticed and able to set aside much of what has happened since.’

He thinks we should have put ‘Greece on holiday from the euro, for ten or fifteen years’, and/or to build the federal institutions necessary to underpin the euro in the meantime. ‘Both of these solutions were politically impossible. We decided not save the euro or to save Greece, but to save our banks. Particularly the French and the German banks who were heavily exposed in Greece and had irresponsibly lent money to a country which everybody knew did not have a land registry, did not have a effective tax collection service, was fiddling its statistics. These things about Greece we have known for the last 250 years. It is not a scoop.’

‘And now, early 2014, Greece has been subjected to the longest and deepest economic depression in modern history.’ After Greece, the crisis spread out to other eurozone countries, not only in terms of enormous costs to save banks, but also in skyrocketing state debts, high (youth) unemployment, and three consecutive recessions. While the US is growing again and unemployment has dropped dramatically across the Atlantic, in the eurozone a ‘Japan scenario’ becomes all the more realistic: decades of zero growth, an ageing population and piles of debt preventing improvement.

9782234075337FSWe need to walk back the euro
Francois Heisbourg thinks the federal solution is not feasible. Any politician who proposes this and suggests to move more power to Brussels, ‘his political career will be over before it has begun. There is no room for political offer for the federalist solution until the return to growth, and for quite some time.’

So what to do? ‘We should seriously consider to walk back the euro, to the mid-nineties with fluctuation rates. This discusison should be held first academically, way before it becomes political. We can do this because of the time we have, thanks to the ECB, and because debt has been renationalized.’

In a matter of days or weeks, this plan could be put into place. Diplomats, politicians and bank governors should convene secretly for a few weekends, then close all the banks and reintroduce the national currencies. This has worked in the past, argues the French researcher: Brazil in 1994 and the United Kingdom in 1914 are successful examples of unexpected monetary overturns. ‘You do not kill the euro per se. You transform it back into the ecu, the european currency unit.’

In fact, Heisbourg doesn’t like his own idea. But he sees no alternative, as this ‘walking back’ is the only serious option to solve the crisis situation especially in southern Europe. ‘We have a lost decade, we have a lost generation in a way that was entirely avoidable. We need countries to devaluate their currencies to get a boost of growth. With Spain and Italy are floating around zero percent growth, they are never going to get rid of the current high unemployment. If they can devaluate, there economies will take off like a rocket.’

Kill the euro, save the European project
The drastic operation is not just meant to give oxygen to struggling economies. For the federalist, it is in essence about saving the European Union. ‘The euro has a catastrophic effect on the European project. My expectation was, during my research for the book, that I would find dissatification amongst the Europeans vis-à-vis the euro per se. But the attitudes towards the euro have hardly varied since the beginning of the crisis. There is no downward trend. People understand the instrumentality of the euro.

‘What you do have is a massive and growing disaffection vis-à-vis the Union!’ (bangs on the table) ‘It is the European project that is suffering, as a result of the policies that we are following to keep the euro. This is my basic case. If we continue like this we get what statisticians call the ‘disruption of linearity.’’

Knowing the eurobubble a bit, where the euro is considered sacrosanct, I would expect that Heisbourg’s message would be rejected immediately. According to him the response from Brussels was in fact quite good. ‘I have had very good discussions there, also with people working in the Commission.’ In general the response was reassuring: ‘This guy is a federalist, if he says this maybe we should listen to it. Maybe they come to the conclusion that I am completely crazy and that I have lost my bearings, that may happen although I actually do not hear that.’ In France however, the book resulted in very little debates or interviews for Heisbourg, as politics in that country are ‘deeply polarized.’ ‘If you are in the National Front you are against Europe and the euro, if you are not in the NF you are for the euro.’

The first translation of La fin du rêve européen will be in Greek. You can only call that ironic.

Watch the interview with Francois Heisbourg here (2o minutes):