London, 7 September 1998 (RFE/RL) -- Senior EU officials say the
launch of the single European currency on January 1 will not be affected by the turmoil on financial markets arising from the ruble devaluation, the Asian economic crisis and worries on Wall Street.
But some economists warn that the birth of the Euro could be
complicated if Europe now slips into recession. One problem is that the new European Central Bank's decisions on interest rates will be very sensitive politically if unemployment in Europe rises.
European Monetary Union will be launched on January 1 next year with 11 participating EU states (all except Britain, Sweden, Denmark, Greece). It will create a single currency zone of 300 million people, and the second largest economy in the world, after the U.S.
For the moment, Germans, French and Italians will continue to use
d-marks, francs and lire. The deadline for the issue of euro notes and
coins is still two years away, the beginning of 2001.
EU foreign ministers, meeting in Salzburg, Austria, at the weekend,
sent a strong message that the single currency, the euro, is on track to succeed -- that it will be a haven of stability.
Austrian Foreign Minister Wolfgang Schuessel, whose country holds the EU rotating presidency, said Europe is creating a massive currency block that will provide an answer to economic shocks,
He said the new Euro-zone -- stretching from Finland in the north to Spain in the south -- will protect individual weaker economies and leave those outside more vulnerable.
He noted that some non-Euro currencies have depreciated on foreign
exchange markets, while those within the euro-zone have been solid. He was referring to Denmark, which had to intervene to protect its currency peg to the d-mark, and to Sweden.
He argued that "EMU is already working" -- that European Monetary
Union (although not yet born) is already shielding its 11 member countries from the effects of the turmoil on world markets.
His message echoed that of European Commission President, Jacques
Santer, who said he was glad all key decisions on the Euro had been taken in May well before the Russian crisis erupted.
But is this confidence justified? Or is what critics call the biggest and most risky experiment in the EU's history being launched at an unfortunate moment because of the shocks in Russia and Asia?
Some economists say the launch of the Euro will be troubled if, as
many fear, the worsening global economy brings a sharp slowdown in growth or a full-scale recession in Europe.
Germany, France and Italy managed to meet the strict economic criteria for membership of the euro only by the narrowest of margins so if there is a slowdown of their growth next year they could find themselves in breach of the Maastricht Treaty rules.
Former British finance minister Nigel Lawson, who ran the economy
under Prime Minister Margaret Thatcher, has argued that the euro many not survive the test of a European recession.
He said that Germany is rightly concerned that under recessionary
strains, budgetary disciplines will break down and that countries that have run loose economic policies in the past (they include Italy and Belgium) will go "back to their old ways."
Lawson says that the proposed "one-size-fits-all" monetary policy,
including European-wide interest rates set by the new European Central Bank (ECB), will also be a severe test of the euro.
Why? Economist Patrick Minford says the ECB faces an impossible task in setting a single European interest rate because of diverging economic conditions in the different EU countries,
Writing in the London Daily Telegraph today, he says that higher
interest rates which might be appropriate to cool off the booming economies of Spain, Portugal and Ireland would risk causing a recession in Germany or Italy where growth is stagnant.
But supporters of the single currency say it will bring many
benefits. Above all, it will be easier and cheaper to do business because transaction costs will disappear in the new currency zone.
One thing is certain: European leaders have invested so much
political capital in the single currency that any rethink or delay is
unthinkable. As EU officials said in Salzburg, the creation of the new
"euroland" zone is now less than four months' away.