The Horizon This Week
Euro: A New Currency for the New Century
January 1, 1999 is a date that the world will remember for a long time. This is when the Euro was launched.
This is an epoch making event. At the beginning of the 21st century it is an event implications of which will continue for decades to come.
This is not the end of the pre-eminence of the Dollar but the beginning of the arrival on the scene of a formidable rival. True in the financial world Japanese Yen had cut out a strong place although never rivalled the supremacy of the Dollar.
The advent of the Euro heralded with fanfare and 4000 balloons in Brussels, the headquarters of the European Union (EU) did not come about suddenly. The Euro is the baby of the EU although a hefty one.
The European Union was conceived by the French visionary Jean Monnet in the fifties. He had the simple idea that the hatred of centuries leading to horrendous bloodshed in Europe had to be buried once for all. Germany had launched two world wars within the first half of the century causing untold death and destruction. Jean Monnet hit upon the brilliant idea that since political issues would take a very long time to settle, the best way to settle intra-European issues and particularly those between France and Germany, was to address economic problems first.
This was the beginning of the European Union as it has emerged today. There are 15 members. They are Austria, Belgium, France, Finland, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain. But 11 have joined the Euro. Britain, Denmark, Sweden and Greece have remained outside the Euro. Whereas Britain, Denmark and Sweden have remained outside the Euro by choice, Greece is unable to participate because her economy has failed to meet the standard set by EU.
The Euro was launched on 1 January and although it looks as something on paper only, it is really not so. From credit cards, to issue of cheques and dealing in bonds and stocks, Euro will be legal tender throughout. Only Euro currency and banknotes will arrive in the market by 2002.
The Euro encompass an area from the arctic to the Mediterranean and will be the lone currency for 290 million people. It will also be the currency of the highly industrialized world and naturally will lay its claim to be the reserve currency nearly at par with the Dollar. It is easy to understand why Euro has caused such a big storm in all the financial capitals of the world.
EU has gone through many steps in its long journey since the fifties. Beginning with the integration of coal and steel industries of France and Germany, the EU has gained from strength to strength. The core of the EU has been closest possible ties between France and Germany. After all, Germany invaded France twice during the last half century. Any European arrangement had to take account of this reality. And during the half century of its journey Franco-German friendship has remained unshakable. Even the reunification of Germany in the eighties was unable to dent this friendship. Thus when Gehard Schroeder is elected the new Chancellor of Germany, he makes his first visit to the Elysée palace in France.
The friendship has been nurtured by successive great leaders who have ruled France and Germany. The friendship got solidified during the long reign of Adenauer and De Gaulle and Helmut Kohl and Francois Mitterand. Indeed these two countries have provided joint leadership to the European Union.
Britain remained the odd man out for a long time. Indeed she did not join the EU for many years. Rather she tried to build alternative centre of Union of states but it proved to be a non starter. Britain finally came in. Britain, who had the largest empire and had naturally many pulls, was unable to throw her lot with EU. That would robe her vocation as a world power. Furthermore she had linked her fate solidly with her former colony and now the sole superpower, the US.
Yet economic pull and proximity to Europe proved much the stronger and Britain joined the EU. There has been divisive debate within Britain on this issue but the debate has progressively died down. It is really a matter of time before Britain links herself with the single currency - the Euro. The mighty Pound will become a thing of the past.
It has taken exactly 30 years for the Euro to be launched. The EU entrusted in 1969 the Luxembourg Prime Minister to study possibilities of creating a common currency. His plan to set up a common currency within 10 years met a disastrous fate and the plan had to be abandoned. In 1989 European Commissions President Jacques Delors relaunched the plan for currency union.
In December 1991 new European Union Treaty called for creation of a single currency on 1 January 1999. On December 31, 1998 EU finance ministers agreed to irrevocable conversion rate between Euro and participating currencies.
The first Euro coins came out of the mint in Italy and the Italian treasury minister described it "a great dream come true". It is worth recalling that a single currency existed during the Roman Empire, which had a larger territory than today's EU. The Governor of the Central Bank of Euro will be Vim Duisenberg of the Netherlands with his headquarters in Frankfurt in Germany.
How does the US view the launching of Euro? It will take some time to adjust to see a new rival in the field, when until now the mighty Dollar reigned supreme. Dollar will no longer be the only currency of reference. Since we live in an age where politics has taken the back seat to economics, this means a big change in the global picture. The Europeans have been extremely careful in launching the single currency and have weighed the pros and cons. There does not appear any danger of any backlash.
After a long period of consolidation EU has now taken a decision to rapidly expand her membership. Several East Europeans and Cyprus are ready to start negotiations for eventual membership. Since nothing succeeds like success there are many candidates for membership.
The question uppermost on everybody's mind is what about political union? Will political union follow the economic union? There can be no doubt that a single currency will work as a strong stimulant in the direction of political union. A vast area without borders is a reality for several decades. 290 million consumers in the world market with a high standard of living will be a potent force. The push will inevitably come from the grassroots for a political union.
What can be predicted for certain is that the cool European heads will not be swayed by emotion bit will take a calculated step if and when political union appears unstoppable. The world will witness then not a single pole of attraction but a multiplier one. The event of 1 January made certain that the world of the twenty-first century will be a very different one from that of the twentieth century.
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