Welcome, Spain, to the Euro

IE Focus | By Gayle Allard, Professor at IE Business School

After just 8 years of circulation the Euro has the dark side that Spain didn’t want to see when it took over from the weakened peseta. What we need now is real improvement in levels of competitiveness.We thought we knew what the Euro was about when we launched it in 2002. We started to spend those new coins and notes with an almost patriotic meaning for pro-Europeans. We went through the “rounding-up” stage, but anyway we were enthusiastic about the new currency and what it meant for Spain and Europe.

And the initial years of the euro brought the benefits we anticipated. Interest rates fell to the lowest ever levels. Trade increased, foreign investment reached new highs and Spain went through a golden era of growth and rapid increases in income. We should almost be forgiven for thinking that belonging to the Euro held only advantages. But we were wrong.

From the beginning, the euro was not ´pretty´ notes, but rather the final abandonment of two fundamental tools that had helped the member states balance out their economies: interest rates and exchange rates.