Acta všfs, 1/2012, vol. 6080
The Future of the Euro
Budoucnost eura
MOJMÍR HELÍSEK
BAGUS, Philipp: Tragédia eura (The Tragedy of the Euro). Bratislava : Jaga Group 2011. 159
pages. ISBN 978-80-8076-093-9.1
The Tragedy of the Euro, a book by Spanish professor Philipp Bagus, was published in the
English original by the Ludwig von Mises Institute publishing house in 2010. In 2011,
publisher Jaga Group from Bratislava published a Slovak translation. The book includes
numerous suggestive, inspirational and provocative thoughts, of which we will only try
to choose the strongest ones.
In the Introduction, the author describes his view of the euro project: it is a project pushed
by European socialists to achieve a central European state, a project of intrigue and politicians’
fight for power. But the project is about to fail.
Chapter Two Visions for Europe continues in the same way. In the European Union, the vision
of socialists has defeated that of classical liberalism. However, the particular effect of
the euro on European centralisation is not explained through monetary policy centralisation
conducted by the European Central Bank (ECB). P. Bagus believes that the creation
of the euro has led to EU Member States using a ‘printing press’ (the ECB probably?) to
finance their deficits. This results in the crises of individual countries’ government debts.
These crises entail fiscal policy centralisation, specifically tax harmonisation. Only marginally
the author also admits the anticipated economic benefit of the single currency, i.e. the
reduction of transactions costs, stimulation of trade and economic growth.
In chapter The Dynamics of Fiat Money, the author draws a conclusion that “Central banks
produce money primarily to finance government deficits”(p. 22). This had been previously
prevented by Deutsche Bundesbank, whose authority maintained a moderate increase
in money supply not only in Germany but also in other EU countries. Naturally, European
governments consequently welcomed the establishment of the euro. That said, the establishment
of the euro does “open new dimensions for government interventions, and
redistribution of wealth” (p. 24).
Chapter The Road Toward the Euro2
also explains why Germany has given up its Mark. The
then politicians in Germany as well as abroad systematically used the blaming of Germany
for World War II as an argument for Germany giving up its Deutschmark. In this chapter,
1	 The English original of the book by Philipp Bagus is available for download at http://mises.org/books/bagus_tragedy_of_euro.pdf.
Quotations in this review were also taken from that version.
2	 In his interpretation of the Maastricht convergence criteria, the author fails to distinguish between percent
and percentage point. The long term interest rate criterion refers to “three governments paying the lowest
interest rates”.
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P. Bagus again revisits the interests of euro area countries’ governments in the introduction
of the euro because “if official price inflation rates are low, the ECB can and actually
must print money in order to support economic policies” (p. 34). P. Bagus believes that
particularly pressure from France was strong in that context.
Chapter Why High Inflation Countries Wanted the Euro explains the main benefit of the euro
to southern countries of the euro area (except lower interest rates). Money supply grew
much faster in those countries than in Germany, and this made it possible to buy German
goods. To explain his proposition, the author uses the following example:“The Greek
central bank prints money to finance the salary of a Greek politician. The Greek politician
buys a Mercedes. [...] In the case of the Euro, paper money flows into Germany where it is
accepted as legal tender and bids up prices” (pp. 49-50).
The next chapter is concerned with Why Germany Gave Up the Deutschmark. According to
P. Bagus, it is possible and even likely that the German government sacrificed the Deutschmark
(in 1999) in order to make the winning powers of World War II authorise the reunification
of Germany (in 1991). In this context, the author refers to numerous statements by
the then European politicians indicating that they had really anticipated the introduction
of the single European currency such a long time in advance.
Subsequent chapters The Money Monopoly of the ECB and Differences in the Money Creation
of the Fed and the ECB explain the author’s idea that central banks print new money and
put them into circulation through their purchases of goods as well as through the purchases
of government bonds. Thus they finance the governments. The conclusion: “The
government establishes its own printing press (central bank)” (p. 66).
The content of the next chapter is evident from its title: The EMU as a Self-Destroying System.
The self-destruction consists in failure to comply with the rules of the Stability and
Growth Pact. The same is true of the chapter entitled The EMU as a Conflict-Aggregating
System. Conflicts arise from the fact that the preparations for an entry into the monetary
union require the redistribution of income through cohesion funds. This pushes European
integration to the verge of collapse. On the other hand, the author recognises the benefit
of European integration in maintaining peace.
In the last chapters The Ride Toward Collapse, The Future of the Euro and in the Conclusion,
the author expresses his ideas of the further development of the single European currency.
The future of the euro is at risk because of its quality in particular. The author does not
relate that quality to the development of the exchange rate; he means the quality of the
currency issuer, i.e. the ECB. The quality of the ECB is expressed by its declining credibility.
This credibility is at risk because the ECB has failed to resist political interests, and serves
politicians in building a transfer union by having started direct purchases of government
bonds. The quality of the euro is also affected by what is known as the ECB’s Qualitative
Easing, i.e. a reduction of the average quality of the assets backing the monetary base
(there is a difference between German and Greek government bonds).
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The author identifies the future of the euro with the government debt crisis. There are five
ways out of the crisis:
reducing the public spending,•	
increasing the competitiveness and boosting tax income,•	
tax increase,•	
economic growth induced by deregulation,•	
credits granted to indebted governments.•	
An opinion of the future of the euro is not explicitly expressed in the book. However, it can
be surmised from the author’s negative position on this currency. The euro is not a good
quality currency; however, there is no explanation of how this poor quality of the euro
makes itself felt. The author asks whether the euro project can be saved. He seeks the answer
in the possible solutions to government debts. However, the link between the crisis
of those debts (of Greece, Portugal, Ireland) and the future of the euro is not explained in
the book either.
The book stresses ideological aspects rather than economic arguments of the benefits and
costs of the monetary union. Even in the conclusion, the author reiterates: “The Euro has
succeeded in serving as a vehicle for centralization in Europe and for the French govern-
ment’s goal of establishing a European Empire under its control - curbing the influence
of the German state” (p. 129). The book does not include many economic arguments for
or against the euro. Hence the primary benefit of the book may be the detailed empirical
material on the development of the Greek debt crisis. And this is not at all bad; even this
benefit should be appreciated.
Contact adress / Kontaktní adresa:
doc. Ing. Mojmír Helísek, CSc.
University of Finance and Administration / Vysoká škola finanční a správní
(mojmir.helisek@vsfs.cz)