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ECONOMY | FEBRUARY 23, 1998 VOL. 151 NO. 8 |
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No Cause for Euro-phobia Those who prophesy doom for the euro are badly misinformed By YVES-THIBAULT DE SILGUY
First, European Economic and Monetary Union is no leap in the dark. The serious prospect of a single European currency may have taken some Americans by surprise, but here in Europe it is the next logical step in a 40-year process of economic integration. The Jan. 1, 1999, launch is now less than a year away. Years of painstaking work have gone into the legal and technical details of the transition. Martin Feldstein and his friends can be reassured. They have not spotted last-minute flaws in Europe's single currency plans. The European blueprint is now complete and companies are actively working to be ready on time. In economic terms too, huge progress has been made with bringing countries' economic performance into line for the successful launch of EMU. The recent skepticism of a group of 155 German economists has not changed the view of the markets. The proof is the defacto monetary stability we have achieved in Europe, even in the face of the recent turbulence in Asia. Second, the irrevocable fixing of exchange rates will immediately make prices in different countries directly comparable. Companies will no longer face the uncertainty and conversion costs which today prevent them from taking full advantage of the frontier-free single market introduced in 1992. This will galvanize European companies to improve their competitiveness. There will be new opportunities for U.S. companies, too. As U.S. Deputy Treasury Secretary Larry Summers told the Senate Budgetary Committee last year, the euro will be good for the U.S. if it helps strengthen and modernize Europe's economy. Of course, monetary union will mean that national currencies can no longer depreciate to compensate for weak economic performance. But experience has shown that this is a poor substitute for structural reform. The result is a fall in the overall wealth of the economy. It is no coincidence that the strongest European economies are those whose currencies have the best stability record. Critics argue that the burden of adjustment will fall elsewhere. In the absence of U.S.-style federal spending and labor mobility, they claim the result will be higher unemployment. This reasoning may hold in the U.S. because of its regional specialization: a slump in the automobile industry affects Detroit; increasing oil prices benefit Texas. But Europe's economies are not dominated by a single industry or by trading links with one area of the world. Economic shocks may affect individual sectors and regions, but are unlikely to have a national impact. National-level responses through exchange or interest rates are inappropriate and could have damaging effects in other sectors. Instead we have national and European regional support policies to tackle problems like the recent restructuring in Europe's steel industry. Third, the euro will boost job creation, not the reverse. Too many people are out of work today because of our inability to modernize labor market policies and social security systems. This is true whether or not we introduce the euro. Two things are needed to get Europeans back to work: a sound economic policy framework and structural reform. The euro will help with both. Countries will arrive in the euro zone with a track-record of low inflation, stable monetary conditions and sound public finances. The stability and growth pact will prevent countries from running irresponsible budget deficits which could affect the credibility of the euro zone. The creation of an independent European Central Bank with the sole objective of price stability will strengthen monetary discipline and guarantee low inflation. These factors should ensure downward convergence of E.U. interest rates--the best conditions for growth and jobs. Preparing for EMU has already provided the stimulus to cut inflation and excessive public borrowing. We now see the benefits in the emerging economic recovery. The discipline of EMU obliges countries to tackle their inefficient and burdensome labor market policies. A more dynamic single market will add to pressure on governments to provide an environment in which companies can flourish. We in Europe went through the arguments about monetary union while the euro was still considered an eccentric dream in the U.S. The clear conclusion of 15 sovereign nations was that the single currency is an economic and political necessity for Europe. We know that the world is now watching. Our future role as an economic and political partner is inextricably linked with EMU. That is why our political determination to make it a success is unflinching. Yves-Thibault de Silguy is European Commissioner responsible for economic, monetary and financial affairs
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an 370 million Europeans really be contemplating economic
suicide? This seems to be the view of Martin Feldstein and a few
other American economists who enjoy making headlines with
alarmist pronouncements about the single European currency. But
their lurid scenarios of economic crisis leading to conflict
within Europe, and even war, are based on familiar Euro-skeptic
arguments that are wrong for three reasons.