Can The Euro Keep It Together?: A Tale of Two Currencies
The European Union (EU) and India have one distinct common feature: a federal system of government designed to be of service to a culturally and historically diverse people. The European Union consists of 28 member states, 24 official languages and recognizes more than 60 regional and minority languages. Similarly, India unites 29 states with122 major languages and an estimated 1,599 minority languages and dialects. Integration therefore is key.
Yet, India appears to be faring better than the EU. For instance, in terms of currency, the Indian rupee has held together whereas the euro has not. In India there is one currency, in the EU there are eleven- just 19 members out of the total 28 are part of the Eurozone circle. Gone are the days of the ‘euro enthusiasts’ and ‘euro-optimists’ that championed the adoption and implementation of a pan-European currency. Instead it seems to be a generally held truth that the Eurozone is a sinking ship. Nobody really wants to be a part of it; the euro continues to fluctuate and drop and signs of growth have not come into view. Instability and insecurity mark the continent and nations are on the rims, gasping for air.
The euro was created as part of a wider attempt to unify economic and monetary policies between the European Communities. It was seen as the necessary step towards further integration. That being said, it formed an indispensable part of Jacque Delor’s vision to create a European single market. The free movement of labour and capital, the removal of trade barriers and greater economic growth could only be fulfilled upon the unification of the region’s economic policies. Moreover a single currency would bring greater choice and stable prices for consumers and citizens, more security and more opportunities for businesses and markets, and a stronger presence for the EU in the global economy. The euro signified a new age of prosperity and unity for Europe.
The single currency came into effect on the 1st of January 1999 nearly twenty years after the first measure, the establishment of a European Monetary System, was taken. It is important to note that in 1999 there were 15 member states in the EU, hence 15 different currencies. The adoption of a common currency was not an easy task and appropriate measures were necessary to guarantee legal convergence and economic stability. Those included the doubling of Regional Aid amongst members, the ratification of the Stability and Growth Act, the creation of a European Central Bank and the education of the mass public. Preparations and ‘convergence criteria’ had to be met in order to ensure that Member States could integrate smoothly into the monetary regime.When the euro was finally launched and came into circulation 11 out of the 15 member states adopted it. Greece issued the euro 2 years later though Sweden, Denmark and the UK ‘opted- out’. On 1 January 2002 euro notes and coins were introduced in the 12 participating states and their national currencies were slowly phased out.
The Indian rupee on the other hand began during the Mughal period in the 16th century when the ruler Sher Shah Suri introduced the silver Rupayya or Rupee coin to unify and consolidate a monetary system for the entire Empire. Later under British influence, the three Presidencies of the British East India Company (Bengal, Bombay and Madras) each issued their own coinages. However under the acts passed by the Legislative Council of India in 1835, the weight and size of the coins were standardized and a single coinage was introduced. When Britain gained full control of the Princely states, the traditional images on the coins were replaced by portraits of Queen Victoria and changes were implemented concerning the coinage’s denominations. In 1950 when India became a republic, the Indian government assumed the sole right to mint the coins. The monetary system and the old units of currency were retained but the British King’s portrait was replaced by Indian motives. In 2010 the rupee adopted its own official symbol, the Indian rupee sign (₹).
So how is it that the EU has failed to impose a common currency? Looking at India, the answer is clear: time. The euro is a recent idea and thus lacks firm foundations. Nations are hesitant to join because they still wish to maintain their economic independence with regards to monetary policy, inflation-controlling measures and bond yields. Furthermore, the financial crisis of 2007-2008 revealed major flaws. The Eurozone has yet to recover with the biggest threat now being a potential “Ital-exit”. After a decisive ‘NO’ vote against Renzi in the referendum last week, Italy may bring the lira back… The specter of financial ruin still looms over the continent and the question at the back of everyone’s mind is “will the euro last?”