Wall S Journal
Europes adventure begins
Historians may well count January 4th 1999 as an epic moment
IT WILL happen over a holiday weekend, and in a way which leaves ordinary citizens more or less unaffected, as new notes and coins will not replace old national currencies for a further three years. But the nature of its launch on January 4th should not let anyone underestimate the importance of the creation of the euro, the new single currency for 11 European Union members, nor miss its genuinely historic nature.
It is the biggest risk the EU has ever taken, but also an adventure that could transform the economic and political landscape of the continent. It is the first time that countries of anything like this number, size or global economic weight have gathered together to share a currency, and thus to pool their monetary sovereignty. It is arguably the most momentous currency innovation since the establishment of the United States dollar in 1792.
The superlatives could go on. But is the euro to be welcomed? Yes, it is, and all should hope that it will be a success. (RE: Yes, but if it will fail, as I think it will, it is better that it fails sooner rather than later).
To paraphrase Keyness criticisms of the Treaty of Versailles after the first world war, treaties often solve one problem but cause the next. In the case of Maastricht, one risk is that the ECBs task will be carried out too strictly and inflexibly.
But the most worrying legacy lies in the treatys strictures about national budget deficits and in the cementing of those concerns in the later Stability and Growth Pact.
As our article argues, this deprives governments of the one power which, under a monetary union, they most need: the ability to use national fiscal policy to counteract recessions which affect one member state more than the others. They have not lost this ability altogether, but it will be severely constrained.
The danger that this raises is that in the event of a sharp recession in one or more countries, there will then be a political reaction against the EU itself. The Union as a whole, and other euro members, will be blamed for the victims inability to moderate its recession. Given that public support for the euro has been thin, to say the least, in most of the member countries (and is unlikely to grow much during the absurdly long, three-year period before people actually get hold of euro notes and coin), this is one helluva hostage to fortune.
A United States of Europe?
Such an outcome, if it happens, could cause a political bust-up; or it could lead to more power being transferred to the EU in the worst possible circumstances, namely when the Union is deeply unpopular.
But there is also a happier way to think about things. Perhaps this nasty outcome will not occur, either because no such asymmetric recession takes place or because governments, meanwhile, have dismantled the stability pact. In that event, the euro will have proved a success: its members will have achieved low inflation, and the currency will have ridden out the ups and downs of the economic cycle without itself becoming politically unpopular.
That is the outcome for which everyone should be hoping during the next decade.
To those who hate federalism, the very thought of political unity will anyway be anathema. But this would be the right way to arrive at a closer union: after a positive experience, and with popular support.
It may well prove perfectly rational, in the long term, for some EU countries to stay out of even a successful euro. But that, too, is a happy thought: a Europe that is broad as well as deep, that takes account of national differences and is not thought of as a federalising bully.
If the euro succeeds in creating such a Europe, its launch on January 4th 1999 will be looked back on as really quite a moment.
(RE: And if it fails, its launch will also be looked back on as reallly quite a moment.)