| The vote may trigger the re-examination of the structural flaws in the currency union |
| It may be inferred from the phrase "lingua franca" that the link language of Europe is, or used to be, French. In some senses, this is odd. Except for the 15-odd years when the Corsican emperor controlled large chunks of Europe, the far-flung French empire has always been located outside the continent itself. |
| Most of the royal families of Europe are Germanic in origin. But up until WWII, everybody in diplomatic circles spoke French and westerners all mimicked the mores of French society. |
| Perhaps this is because French is a wonderfully nuanced language, easily lending itself to the subtle wordplay that diplomats and Derridas love. It is also a wonderful language in terms of strict phonetics. |
| There is a special flavour to conducting intimate affairs in French; when a demure "mamselle" murmurs "yes" in response to your importunations, it sounds so much much more enthusiastic because it comes out "whee!". |
| When the French say "non", they say it equally emphatically. Their recent rejection of the draft European constitution has set the world in a tizzy. It will force the lawyers and diplomats back to the drawing board and might eventually lead to an unravelling of the EU as it stands today. France is the second-biggest nation in the EU so this will have a major influence on ratification. |
| There seemed a nationalist tinge to the French rejection of the draft, although it's too early for pundits to have deconstructed voting patterns. The rejection may not be a bad thing, though, from a strictly economic viewpoint. The Euro constitution and currency union carry serious structural flaws. |
| The French vote caused a run on the euro, and it may, with luck, trigger a re-examination of the way the currency is managed. If that means a restructuring of the mandate of the Euro central bank and a change in the manner in which collective monetary policy is handled, so much the better. |
| A change in euro monetary policy and currency management could energise global growth. Europe has low growth in part because it has ageing populations and a deep-rooted resistance to non-European immigration. But the largest economies in the region are crippled by the monetary mandate. |
| The Euro central bank "" essentially an expanded version of the former Bundesbank "" examines inflation across member nations and sets the rate at the highest end of the band. |
| If inflation in, say, Italy or Ireland, is running at twice the rate in Germany, the bank rate will be set to tackle Italian inflation. German and French businesses will be crippled by prohibitive interest costs and the biggest engines of European growth will be strangled. This has happened consistently since the advent of currency union. |
| Currency union in itself is a good thing. A single currency oils the wheels of business, if only by making it unnecessary for everyone to calculate exchange risks. Currency union is also one of the best ways of getting large, volatile communities to cooperate with each other. It can even be a useful catalyst for national union. |
| For instance, the many kingdoms that united to form Germany started the process with a postal and currency union decades before Bismarck completed formal unification. |
| Without currency union, continent-sized nations like the US, India, Russia and Brazil would probably have split into multiple nations long ago. What holds Kerala and Bihar together (or Arkansas and Hawaii)? The most tangible element is the currency. |
| But monetary policy in large nations is not hobbled by political correctness and nationalist considerations. Greenspan and Reddy act on the basis of aggregate growth and weighted inflation averages. Their European counterparts can't. |
| The German:Irish GDP ratio is of the same order as Maharashtra:Mizoram or New York:Rhode Island. The Federal Reserve doesn't have to hobble growth in New York to curb liquidity in Rhode Island nor does the Reserve Bank of India give equal weightage to Mizoram and Maharashtra. If the Europeans work this one out as a result of the French rejection, nationalism will have an unexpectedly useful outcome. |
Disclaimer: These are personal views of the writer. They do not necessarily reflect the opinion of www.business-standard.com or the Business Standard newspaper
