SOON the world will consist of two economic superpowers, Euroland and the United States of America, with Japan a junior partner. This will result from an unprecedented reversal in the relationship of political to monetary power.
Throughout history, governments consolidated control, then minted money. The 11 members of the European Union that agreed over the weekend to create a common currency established monetary unity without prior political authority.
The 15 members of the European Union have a single market in trade, goods, regulations and labor.
The 11 in the monetary union will have a single currency as well.
Euroland, the name given to that portion of Europe adopting the euro, has 20 million more people than the United States and roughly equal shares of world production and trade. With Germany and France at the core, this creates an enormous economic engine that is already seeing huge company mergers, creating Eurocorporations, to make the most of the opportunities. Come Jan. 1, the 11 countries' currencies will be locked to an exchange rate controlled by a single European Central Bank, in Frankfurt. The currencies will look the same and keep their old names. But prices in many stores are already being posted in euros as well as francs or marks. In three years, euro notes and coins will be introduced. And by July 2002, marks and francs will be no more. For U.S. tourists unsure of whether they are in Milan or Bruges, that will be a blessing: no need to change money.
Because the European Central Bank will govern money supply and interest rates for countries with different languages, inflation, employment, welfare systems and growth, its decisions will not be best for all of them equally. Losers will appeal to nationalism. The strains will be enormous.
Some preview of this tension was seen in the unseemly political fight between Germany and France over naming the first head of the Central Bank. The Dutch central banker favored by Germany won, only after promising to quit halfway through his eight-year term to make room for the French central banker demanded by French President Jacques Chirac.
The dollar is now in use as the world's reserve currency out of all proportion to the U.S. economy's place in the world. This role was enjoyed earlier by the British pound sterling, long after Britain had lost its economic pre-eminence.
The euro will not replace the dollar overnight, but it may well in a century. Barring an early collapse of this experiment, the euro will probably take its place next to the dollar within a few years.
The resulting imperative for global growth and stability will be collaboration between institutions of the United States and the European Union beyond what has been established so far.
Pub Date: 5/07/98