Things That Make You Go Hmmm - Such As A "Common Currency"

Tyler Durden's picture

Grant Williams welcomes in the new year with the following biopic on the 10 year anniversary of the Euro:

Well, it was touch and go for a while, but here we are: January, 2012. The 10th anniversary of the euro!!!!!

Well..... that’s actually not STRICTLY true. In fact, the euro debuted as a financial unit three years prior, on January 4th 1999, but only in  corporate and investment markets.

Initially, there were eleven EU nations that adopted the currency at launch (for those of you keeping score at home they were Austria, Belgium, Finland, France, Germany, Italy, Luxembourg, the Netherlands and the future PIIGS Ireland, Portugal and Spain). In all, about 290 million people were suddenly represented by a new unit of exchange designed to increase European integration and economic growth.

The euro got off to a flying start - closing its first day of trading at a healthy-looking 1.17 to the dollar (a level it may well soon recapture if recent days are anything to go by) - and looked set to become a serious competitor to the big name wrapper in the world of fiat currency - The Ubiquitous U-S-D.

Three years later - and ten years ago this week - the euro proper became legal tender as banknotes denominated in euro went into circulation across the continent, replacing the Austrian schilling, Belgian franc, Finnish markka, French franc, German mark, Italian lira, Irish punt, Luxembourg  ranc, Netherlands guilder, Portugal escudo and Spanish peseta. The UK, Sweden and Denmark all decided NOT to join the party after fierce debates in their respective Parliaments which have now cemented some political legacies and irreparably damaged others.

Currently, aside from the 17 members of the Eurozone who have fully adopted the euro (and by now, like the regulars at Cheers, everybody knows their names), Montenegro and Kosovo and several European micro states (Andorra, Monaco, San Marino and the Vatican City) as well as in three overseas territories of EU states that are not themselves part of the EU (Mayotte, Saint Pierre and Miquelon and Akrotiri and Dhekelia) have, in their collective wisdom, decided to adopt the euro and lash themselves to the deck of the SS Eurozone. Together this direct usage of the euro outside the EU affects over 3 million people.

But it doesn’t finish there. Oh no. Not by a long chalk.

Cuba, North Korea and Syria all actively use the euro as a trading currency while, outside the Eurozone proper, a further 23 countries have direct pegs to the euro as a result of previous pegs to either the French franc, Deutsche mark or Portuguese escudo. In addition, Bulgaria, Denmark, Lithuania and Latvia also have opted to institute euro-pegs of one form or another. Collectively, this means that the currency currently walking a very thin line between love and fate is officially used by 350 million Europeans, an additional 150 million people in Africa and a further 25 million people in various territories and, last but definitely not least, a further 500,000 poor souls on various Pacific Islands.

The chart on the next page gives an idea of the coverage of the Euro (including external pegs) and, though the detail required to be able to see the myriad tiny territories that are tied in some way to the euro is unavailable at this resolution, trust me - they are there.

Not since the reign of Charlemagne in the 9th century had Europe been united (almost) under a common currency - although back then, The King Of The Franks had to unite Europe under a slightly more aggressive banner as he expanded the Frankish kingdom into an empire that, after his conquest of Italy, incorporated most of Western Europe. Charlemagne was crowned Imperator Augustus by Pope Leo III on December 25, 800.

Charlemagne’s rule over Europe is associated with the Carolingian Renaissance and, in fact, the French and German monarchies descending from the empire ruled by Charlemagne as Holy Roman Emperor cover most of Europe. In his acceptance speech of the Charlemagne Prize Pope John Paul II referred to him as the Pater Europae (“father of Europe”): his empire united most of Western Europe for the first time since the Romans, and the Carolingian renaissance encouraged the formation of a common European identity.

As you can see from the map of the Frankish Empire on the previous page, a similarly -shaped ‘core’ was at its heart.

It was all so easy back then. If the peripheral countries of your alliance don’t behave themselves, simply dispatch an army.

Charlemagne presided over the creation of Europe’s first ‘common currency’ - the denier - and, though its introduction was somewhat less of a negotiation than that of the euro, a look at the history surrounding its birth proves that, while things change, they stay the same in many ways:

(Wikipedia): Charlemagne had an important role in determining the immediate economic future of Europe. Pursuing his father’s reforms,  Charlemagne abolished the monetary system based on the gold sou, and he and the Anglo-Saxon King Offa of Mercia took up the system set in place by Pippin. There were strong pragmatic reasons for this abandonment of a gold standard, notably a shortage of gold itself, which was a direct consequence of the conclusion of peace with Byzantium, which resulted in the ceding of Venice and Sicily and the loss of their trade routes to Africa and to the East. This standardisation also had the effect of economically harmonising and unifying the complex array of currencies which had been in use at the commencement of his reign, thus simplifying trade and commerce.

He established a new standard, the livre carolinienne (from the Latin libra, the modern pound), which was based upon a pound of silver—a unit of both money and weight—which was worth 20 sous (from the Latin solidus [which was primarily an accounting device and never actually minted], the modern shilling) or 240 deniers (from the Latin denarius, the modern penny). During this period, the livre and the sou were counting units; only the denier was a coin of the realm.

Charlemagne instituted principles for accounting practice by means of the Capitulare de villis of 802, which laid down strict rules for the way in which incomes and expenses were to be recorded...

In addition to this macro-oriented reform of the economy of his empire, Charlemagne also performed a significant number of microeconomic reforms, such as direct control of prices and levies on certain goods and commodities.

Charlemagne applied the system to much of the European continent, and Offa’s standard was voluntarily adopted by much of England. After Charlemagne’s death, continental coinage degraded, and most of Europe resorted to using the continued high-quality English coin until about  1100.

Ring any bells?

A gold standard, abandoned mostly due to a shortfall in the amount of the metal required to back the monetary system? A common bloc designed to simplify trade and commerce? Macro-economic reform of the union from the centre? Voluntary adoption by England who was not part of the union?

Ah, well almost.

Anyway, my point is this: In the mid-700s it probably seemed inconceivable that Europe would be united under a common ruler, much less a common currency and, by the mid-800s, it probably seemed equally inconceivable that such a union could split asunder - but such is the nature of unions (and currency blocs for that matter). As the individual members undergo the individual stresses associated with running individual and idiosyncratic economies under a common banner, it is inevitable that there will be periods when maintaining the status quo becomes impossible.

It was true of Europe in 800 - it holds true today.

Read the full letter here.