Postwar: A History of Europe Since 1945

by Tony Judt

Spain ‘qualified’ for euro membership by what one Spanish observer tartly described as a combination of fortuna and virtu: an upswing in the economy allowed the government to pay down the country’s public debt just in time for the 1999 introduction of the currency. Even Italy managed to pass the Teutonic tests (which many Italians rightly suspected had been set up to keep them out), albeit with more than a little juggling of figures and the one-time sale of public assets. By 2003 the euro-zone encompassed twelve countries, ranging from Ireland to Greece. But—as many skeptics had predicted—the strains of a ‘one size fits all’ currency soon began to tell. The newly established European Central Bank (ECB) in Frankfurt maintained from the outset a relatively high interest rate, to support the new currency and secure it against inflation. But the economies of the euro-zone states differed with respect both to their level of development and their point in the economic cycle. Some, like Ireland, were booming; others—notably Portugal—lagged far behind and could have used the boost to domestic activity as well as exports that would traditionally have been achieved by lowering interest rates and ‘softening’ the currency. Shorn of the power to implement such measures, the government of Portugal was obliged by the terms of the ‘pact’ to reduce government expenditure—or else face substantial fines—just when it ought, in conventional economic theory, to have been spending its way out of...