The Sunday Times December 31, 2006
Non, nein, no: Europe turns negative on the euro
Matthew Campbell, Paris

A FRENCH diplomat who spent the festive period at his weekend home in rural
France was astonished last week when a man in a DIY shop presented him with a
bill in francs, rather than in euros, with the excuse: “I am sorry, monsieur,
most of my clients prefer it that way.”

In a world apart from the euphoria with which 12 nations — excluding Britain —
switched to the euro on New Year’s Day in 2002, hostility towards the single
currency is growing as a wider malaise over an expanding Europe takes hold.

“I suppose in some places the euro has just never really caught on,” said the
diplomat. “I feel very pessimistic about the future.”

Slovenia will drop its tolar tomorrow in favour of eurozone entry, but in “old
Europe” the fifth anniversary of the introduction of the euro will be more an
occasion for bitter reflection than fanfares.

The high denomination notes may be popular among criminals, but one poll
released last week showed that 52% of French people believe that “the euro is a
bad thing”, blaming it for inflation, and 57% felt that the euro had been bad
for them “personally”.

A quarter of the population, it emerged, still calculated prices in francs, a
process that the government has not seemed to discourage by requiring all
receipts to display, alongside the euro total, the equivalent price in francs.

It might not matter if this disgruntlement were limited to rural French bakers
who spit at the mention of euros: the French are in a peculiar mood, as they
demonstrated most spectacularly by rejecting the European Union’s proposed
constitution in a referendum last year.

More worrying to Brussels, however, was evidence that resentment of the euro was
spreading to other parts of the empire. A majority of Germans, it turns out,
also long to have their old currency back, according to another recent poll,
because of inflation that they blame on the “teuro”, as they often call the euro
in a play on teuer, the German word for expensive.

The Spanish and Irish seem relatively content with their lot but the same cannot
be said of Italy, where 64% of people acknowledged feeling “little” or “not at
all” at ease with the European currency, which they blame for higher prices.
Some politicians have called for the country to re-establish the lira to revive
economic growth.

This was all a far cry from the “very great federating power” that Hubert
Védrine, the former French Socialist foreign minister, imagined for the euro.

“It has not had the effect of an integration lever that its founding fathers
dreamt of,” said the left-wing Libération newspaper in an editorial last week.
“At a time when the European project has broken down . . . you have to be a
Slovene to feel any enthusiasm about joining the eurozone.”

In Slovenia the opinion polls showed that the euro was still generally popular
because it represented a final break with the communist past.

Yet even here there were fears about rising prices and other EU newcomers are
hardly racing to the starting line. Hungary has abandoned its previous target of
adopting the euro in 2010, and Estonia has decided to move its target entry date
to 2010 from 2008, despite its economic success.

Those already in the club are hardly a good advertisement for it. By contrast
with German angst about the euro, which is strongest among the least well-off,
Gallic grumpiness with the euro system extends to the political classes that
once trumpeted its virtues.

Various French politicians, including Dominique de Villepin, the prime minister,
Ségolène Royal, the Socialist presidential candidate, and Nicolas Sarkozy, her
most likely opponent from the centre-right, have displayed a populist streak by
making the European Central Bank their favourite political punchbag as the
presidential election draws near.

The bank’s officials last week seemed to take pride in the strength of the euro
and news that the value of euro notes in circulation was this month likely to
exceed the value of circulating dollar notes. There was similar satisfaction
over Iran’s recent announcement that it would keep foreign reserves in euros
rather than dollars.

For French politicians, however, the euro’s strength was to blame for making
French goods too expensive overseas and hampering growth. This ignored a host of
other factors, such as high French labour costs. However, it played well with an
electorate terrified of being left at the mercy of market forces. It also
highlighted the protectionist instincts of even supposedly reform-minded
politicians such as Sarkozy, the son of a Hungarian immigrant, who has
revolutionised French politics with American-style campaigning techniques and
who likes to advertise himself as the candidate of “rupture” with the past. Like
Royal, though, he was in favour of bringing the European Central Bank under
politicians’ control.

All of this reflected a wider European malaise: rejection of the EU constitution
has left Europe rudderless and adrift just as it is set to expand to 27 members
next month. The inclusion of Bulgaria and Romania will make the EU more unwieldy
than ever. But as Germany takes over the rotating presidency of the organisation
this week the Franco-German axis, traditionally a motor of decision making in
the EU, has never seemed weaker.

Angela Merkel, the German chancellor, has put more effort over the past year
into repairing relations with America and befriending George Bush, its
president, than she has into building ties with France.
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