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World: EU Single Currency Has A Quiet Start

  • Breffni O'Rourke



Prague, 4 January 1999 (RFE/RL) -- The new European Union single currency, the euro, has made its long-awaited debut on international money markets.

The currency came into existence in 11 EU countries in the first moment of the New Year. It faced its first test today when the world currency markets reopened for business.

After years of ever more intense preparations, the 11 sovereign countries have staked their collective economic future on the success of the new currency. No matter how careful the planning, the euro launch represented a giant step into the unknown, a throw of the dice with the highest stakes.

So how did it go?

Well, nothing much happened at all. Over the holiday weekend --after the euro's official introduction, but before the money markets opened -- citizens of the 11 nations spent their days at leisure, still buying their cups of coffee in the same marks, francs, escudos and shillings that they had used before, and still paying the same prices. Since the new currency's notes and coins won't be issued until 2002, there was no immediate visible impact on most private citizens.

On the international money markets, reactions were subdued today. First to open were the Asian and Australian markets, followed by the European exchanges, and then by the United States. Trading was thin, as dealers nibbled cautiously, like fish not yet ready to swallow the bait. But in Asia and Europe, the euro traded slightly above its pre-trading reference value against the U.S. dollar and the Japanese yen. The same calm trading was expected later in the day in the U.S.

The euro's debut was thus unspectacular, even anti-climactic. But precisely because of the lack of turbulence and confusion, its first day has to count as an initial success. Chief Economist with the Industrial Bank of Japan (IBJ) in Frankfurt, Eckhard Schulte: "It seems to be a pretty solid start for a new currency, actually. My personal assessment is that we will see more strength in the euro in the next couple of days. We might see it at 1.19 or 1.20 against the U.S. dollar (as compared with 1.17 today). But in the medium term, I doubt that there will be a substantial appreciation of the euro against the U.S. currency because there is still a big difference in the interest-rate level between the U.S. and Europe and that will prevail in 1999."

In time, and unless some unforeseen trouble intervenes, the euro is expected to take its place alongside the dollar and the yen as one of the world's top currencies. The "eurozone," which will almost certainly expand in coming years to include other countries, is a powerful economic unit of 290 million people producing almost one-fifth of the world's gross domestic product (GDP).

Today's quiet start to the euro was the preferred option of the new European Central Bank (ECB), which is to steer monetary policy in the eurozone from now on. The Frankfurt-based ECB sets great store on the stability and solidity of the system, but less on the value assigned the currency on external markets. Asked if the bank was pleased with the initial reaction to the euro, ECB corporate relations chief Manfred Koerber says the launch was achieved smoothly:

"In technical terms, yes. I would not like to comment on the events on the market. This is not yet the time to assess whether certain exchange rates were right or wrong, or whether they pleased someone or did not please someone. But in technical terms we can say that so far, things started in the expected manner."

One of the ironic aspects of the euro's launch is that London, by far Europe's largest financial center, is not participating in the single currency. The skeptical British are staying out of the eurozone for the time being, saying they may join in a few years if it is a success. But the City of London, as the financial quarter is known, is at great pains to show that it has not been left on the sidelines. London Stock Exchange spokesman Jeremy Hughes:

"The message has been so far that although Britain is 'out,' the City is very much 'in,' in the sense that we are prepared for the euro. We expect certainly to see London retain its predominant role in foreign-currency exchange trading, and the Stock Exchange itself in terms of equities has been working hard with its clients to make sure that we stay the market of choice in Europe."

Frankfurt-based IBJ analyst Schulte says he believes London is too big to stay outside the eurozone for long, whatever the government thinks, and whatever the notoriously anti-integrationist British press believes:

"If the euro is successful, there will be enormous pressure in the City for Britain to join the euro rather sooner than later. The big question then is what will happen in the British mass media. Will they still continue to be so euro-skeptical or not, and will the government be able to change the opinions in the media? It can, there is a good chance Britain will join quite soon, in 2002 or 2003."

The euro has clearly had a healthy birth. Now the world must wait awhile to see whether it grows in strength as well as in health, or wilts in the face of many challenges sure to come.
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