ABSTRACT
Introduction This chapter explains that Bernard Schmitt clearly predicted the euro-area crisis long before it occurred, as a result of his critical investigation of the conventional definition of money and the ensuing flawed conception of monetary union. The next section presents Schmitt’s critiques in this regard. It thereby points out that money is not a financial asset, that its purchasing power does not depend on agents’ confidence, that a payment is not a bilateral exchange, and that the balance of payments concerns a country as a whole and not merely its residents. This section also explains that monetary union does not imply necessarily the irrevocable fixing of its currencies’ exchange rates, that there is an essential distinction between a single currency and a common currency, and that the member countries of the European Union (EU) do not need a single currency, which is actually a factor of crisis for them. In light of this, the third section briefly recalls that money is an ‘asset-liability’ whose purchasing power depends on production, and that each payment implies three parties (namely, the payer, the payee, and the banking system as a monetary intermediary). It then explains that a national central bank represents its country in the international monetary space, where a common (instead of a single) currency ought to be issued by an international settlement institution. If so, then the common European currency (let us call it the ‘international euro’, €i) will not be used by residents for either their domestic or cross-border transactions, which they will settle using their own national currency – thereby recovering national monetary sovereignty. Between any two member countries of the European monetary union, by contrast, all payments will be settled using the international euro as a truly international currency that enables payments to be final also at the international level. This contrasts with the current situation in the so-called TARGET2 system, which does not imply payment finality at the international level, because, to date, the national central banks involved therein do not pay (and are not paid) finally when there is a transaction across that system. The fourth section is thus in a position to explain that the European single currency area is neither a truly monetary union (because actually the euro is not really a single currency for its member countries) nor a factor of economic as well as financial stability and macroeconomic convergence
across these countries. In fact, the monetary policy of the European Central Bank (ECB) has been a factor of instability and crisis, because of its ‘one-size-fits-all’ stance as well as because of a lack of a true monetary integration as epitomised by huge TARGET2 imbalances. This section shows therefore that countries like Germany as a matter of fact exploited these problems to benefit from the situation unduly, since the free movement of financial capital across the euro area has increased (rather than reduced) actual macroeconomic divergence across that area. The conclusion recalls Bernard Schmitt’s radical critiques of European monetary union and points out how his proposal for monetary integration is both urgent and appropriate to solve the euro-area crisis at the time of writing.
