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Europe: Analysis From Washington -- The Consequences Of A Common Currency

  • Paul Goble

Washington, 1 February 1999 (RFE/RL) -- A debate at this year's World Economic Forum at Davos suggests that the consequences of the introduction of the euro may be far more unpredictable than either the supporters or opponents of the common European currency have assumed.

On one side were the representatives of the 11 countries which have agreed to join the euro-area and to suspend their own national currencies over the next several years. Not surprisingly, officials and business leaders from these states argued that the introduction of the euro will increase competition and thus help improve the continent's economic performance relative to the United States.

On the other was a small group of analysts who challenged the assumption that a common currency would necessarily have that effect. Instead, in a paper entitled "Wake Up Europe!" they suggested that the new common currency could have the reverse effect, simply extending protectionist sentiment across Europe rather than promoting competition within and beyond it.

Not surprisingly, the official optimists were given pride of place at the Davos sessions. But what is striking is that the report of the more pessimistic dissidents -- an American based in Berlin, a Frenchman and a German -- has received significant press attention both in Europe and beyond.

Part of the reason for that somewhat unexpected turn of events lies with the euro's very newness. This year's Davos sessions began less than a month after the euro was introduced for a limited number of transactions, and many people are naturally concerned about any change, particularly one as potentially fateful as the replacement of one currency with another.

But a more fundamental reason for the broad attention the pessimist position has received appears to lie elsewhere. Rather it is to be found in the as yet uncertain sense that many advocates of euro expect it to do more in the political sphere than any single economic measure can. And in that sense, concern about the euro and Europe's future touches a far larger nerve.

The current boosters of the euro argue that it will automatically increase competition within Europe and that European companies will thus become more competitive internationally. But such changes would require significant political and even cultural changes both within and among the countries which are part of the euro area.

They would require the wholesale dismantling of much of the system of entitlements that many Europeans have come to think of as properly theirs. And these shifts in turn would necessitate a revision in the way Europeans and their democratically elected governments say they want to operate.

Such changes in the way Europeans do business may in fact take place. But as the Davos dissidents suggest, these changes will be more likely the product of political decisions not yet made rather than the outcome of unfettered economic arrangements already put in place.

And that in turn suggests a third version of the future. That one seems certain to be different than those suggested by the two sides of the Davos debate. But it also appears to be more likely in Europe and more instructive for others who may believe that economic measures can achieve political goals without the unintended consequences of political struggle.

That third future -- one not of an easy transition to what many in Europe call American-style capitalism nor of the further entrenchment of the protectionist impulses found in many European industries and countries today -- is likely to consist of a continuing political struggle between the two.

In such a future, Europe will change, sometimes moving in one direction, sometimes in another. That is not an entirely satisfying answer to the challenges Europe now faces. But in many ways it is a far better one than either side in the Davos debate now offers -- a world in which economics becomes a surrogate for politic choice or one in which politics can ignore economic facts.