London, 1 May 1998 (RFE/RL) -- EU leaders are meeting in
Brussels this weekend to lay foundations for the single European currency, arguably one of the most important decisions affecting Europe since the fall of the Berlin Wall.
The European Commission has already recommended that economic an monetary union (EMU) should start on Jan 1, 1999, with 11 participating EU states (all except Britain, Sweden, Denmark and Greece).
The purpose of the Brussels summit is essentially threefold: formally to choose the founder members of the union, fix the exchange rates at which they will lock their currencies together and select the chair of the central European Bank as well as members of its board of directors.
The single currency zone will embrace 300 million consumers making up the second largest economy in the world, after the U.S. Its creation marks the most important development within the EU since its establishment in 1958.
Britain, Denmark and Sweden are wary about the monetary experiment and are staying outside, at least for now. Greece would like to sign up, but it failed to make the qualifying standard.
The single currency, known as the Euro, will make it easier for
Europeans to go shopping in each others' countries, to go on holiday, or to conduct business across frontiers. The deutschmark, the franc, the lira -- all will disappear. Although the currency will come into existence in January next year, banknotes and coins will not actually go into circulation until the beginning of 2002. At today's exchange rates, one will be worth a bit more than $1.
Supporters of the EMU say it's an important milestone on the way to
uniting Europe more closely. They say it will bring many benefits. Above all, transaction costs will disappear inside the single currency zone, making it easier and cheaper to do business. The move is expected to lead to a wave of business mergers and industrial restructuring as firms seek to be more competitive. The supporters also say that the EMU could boost Europe's self-confidence, providing a sort of an antidote to the region's persistent diversity.
But critics say the EMU is a gamble, a leap into the unknown, a rash experiment that may have unforeseen and dire consequences, including higher unemployment and political instability. They say it is a foolish move at a time when continental Europe is saddled with unemployment and inflexible labor markets. Another worry is that the failure of EMU could delay the process of enlarging the EU to include the East and Central Europeans.
EMU was originally intended to focus on France and the northern European countries, around the deutschmark zone, but it has been enlarged to include the southern Europeans, who disciplined their economies to meet the Maastricht Treaty criteria for joining EMU.
Critics say the inclusion of inflation-prone countries like Italy and Belgium will make the a "soft" currency. Both have national
debts relative to their gross domestic product that are about double the ceiling set by the 1992 Maastricht Treaty.
Many Germans are dismayed by predictions that a "soft" Euro will
replace their "hard" deutschmark. Some charge that the single
currency is a project conceived by Europe's political elites without
deep-rooted support among the European public. There are fears that the single currency will lead to the imposition of European-wide interest rates inappropriate to national or local conditions, making it harder for governments to take measures to lower unemployment.
The new currency will be under the jurisdiction of the European
Central Bank, based in Frankfurt, and modeled on the Bundesbank. Its
defining task will be to "maintain price stability." The Germans want much of its decision-making to be outside politics, but the French say there should be more democratic accountability.
The bank will be empowered to impose stiff fines on countries that run excessive budget deficits. Critics say these fines are politically
unworkable, and that the bank is a untested institution that will face
formidable political pressure, particularly if Europe continues on the road of slow growth and high unemployment.
Will the EMU prove viable? Supporters say it is foolish to
underestimate the sheer economic and political will in Europe to make the single currency a success. But critics predict, in the worst case scenario, that EMU will eventually fall apart, leading to furious recriminations among the leading nations of western Europe.
The London Financial Times said in an editorial today that EMU will transform Europe. Whether it transforms Europe for the better depends on how boldly the continent's leaders, businesses and citizens seize the opportunities it presents.