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European Affairs
Letter From The Publisher: Euro Adjustments . . .
by Jacqueline Grapin
When Antonio Guterres, the Portuguese Prime Minister, proclaimed at the March Lisbon summit, on behalf of the Presidency of the European Union, that the new common strategic objective would be "to make Europe the most competitive economic area in the world by 2010," it reminded some of us of good old Nikita Khrushchev brandishing his shoe over the podium of the United Nations and proclaiming that the Soviet Union would beat the United States in income per capita before 1980.
Europe, in its integration and its modernization process, is a great performer. But while being ambitious, let's also be modest, or at least realistic. In the words of La Fontaine when teaching the young Louis XIV to be a great king, a frog that wants to be as big as an ox puffs himself up so much that he bursts.
It was certainly smart of the Portuguese presidency to promote an overall strategy for introducing a knowledge-based economy, together with guidelines to monitor progress and benchmarking in the light of best practices. While launching their new drive toward liberalization and deregulation, the 15 leaders proclaimed their faith in a "European social model."
But let's recognize that several member states resisted benchmarking. Mention of a goal to reduce unemployment from 8.8 percent to 4 percent, and the poverty rate from 18 percent to 10 percent was dropped from the summit's final conclusions. France succeeded in preventing two important sectors - energy and transportation - from being included. Too bad for European competitiveness...
Perhaps while European integration proceeds in this way, and the future performance of the euro remains uncertain, it is time to credit the U.S. Secretary of the Treasury, Lawrence Summers, for coming up with a reasonable assessment of the implications of the European single currency for the United States. As early as 1998, he said, effectively: "If it is a success, it will be good for all of us. If it is a failure, it will be bad for all of us."
In other words, the United States is now big and powerful enough to recognize that Europe is like General Motors. What is good for Europe is good for America. Bearing this in mind, "eurobashing" on the part of some short-sighted American observers, and more importantly by major operators in the City of London, whose enthusiasm for continental grand schemes is still limited, is counterproductive - not only for the euro, but for their own interests, too.
Outsiders dreaming of "eurofatigue" in Germany and other Euroland states are most likely miscalculating that a "euro without a master" might soon be abandoned. They forget that the first goal of the common currency is to provide monetary stability among the members of the monetary union - a goal that has already been achieved. As uncertainty persists in global capital markets, no less than 300 million Europeans representing 20 percent of world exports trade quietly among themselves with their common currency.
Exporters in the 11-nation euro zone - and 30 peripheral countries affected by the common currency - are thrilled by the low level of their prices in dollars, as this facilitates their penetration of third markets. And it is ironic to hear the German government arguing against increasing interest rates to support the euro, because Berlin these days prefers higher growth and lower unemployment, while the French, formerly addicted to devaluation, now argue in favor of a stronger European currency.
There is a wide consensus that strengthening the economic governance of the euro zone would be positive for the euro, the EU, and the international financial community. The British don't like it. They want to ensure that important decisions are still made in the 15-nation Council of Ministers, where they are fully represented, and not in meetings of the Euro-11, in which they have no voice. But if the others are determined to go ahead, there is little the British can do to stop the move to closer integration in the euro zone, as long as they remain outside it. Among the euro-adjustments that are necessary, a more integrated economic governance of the euro zone is urgent, and ultimately, if Larry Summers is right, it should prove to be in everyone's interest.