Let's Talk about the Euro
Wednesday Salon, May 6th #844
we turned our attention to the the euro.
Saturday, May 9, 1998 European idea gains currency .... The euro is a triumph of imagination and political will on the part of the 11 countries that have signed on to use it as of Jan. 1, 1999. Put aside quibbles about the fudges and petty manoeuvring that are marring its launch: 11 proud sovereign countries have voluntarily renounced familiar and trusted national currencies with historic names like the mark, the franc and the lire in favour of a whole new money which will be largely beyond their -flag.
The 11 euro countries with Population (July 1997 est.)
GDP - per capita: purchasing power parity - (1996 est.)
Austria
8,132,505
$19,700
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Belgium
10,165,059
$20,300
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Finland
5,137,269
$19,000
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France
58,609,285
$20,900
news
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Germany
82,071,765
$20,400
news
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Germany
West
$23,100
East
$9,000
news
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Ireland
3,606,952
$16,800
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Italy
56,830,508
$19,600
news
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Luxembourg
420,416
$24,500
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Netherlands
15,649,729
$20,500
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Portugal
9,931,045
$12,400
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Spain
39,107,912
$15,300
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Will not play |
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Can not play |
Not
to |
invited
play |
Britan
57,591m
$20,400
news
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Denmark
5,305m
$22,700
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Sweden
8,865m
$20,800
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Greece
10,616m
$10,000
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Canada
30,337m
$25,000
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U.S.
267,954m
$28,600
news
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THE EURO TAKES OFF
- Leaders of the European Union's 15 countries formally agreed that 11 of
them would adopt a SINGLE CURRENCY, the euro, from the start of next
year. Coins and notes should start circulating in 2002.
- The event was marred by a row over who should run the new European
Central Bank. WIM DUISENBERG, a Dutchman, will be its first president,
but the French insisted he should step down "voluntarily", probably
half-way through the eight-year term laid down in the EU's Maastricht
treaty. The head of France's central bank, Jean-Claude-Trichet, would
then take over. But later, Mr Duisenberg seemed to cast doubt on the
deal.
- The Danish government intervened in an effort to end DENMARK'S BIGGEST
STRIKE for two decades. Some 450,000 Danes have been demanding, among
other things, a sixth week of holiday a year.
- The Dutch Labour Party, led by the country's incumbent prime minister,
Wim Kok, won the DUTCH GENERAL ELECTION, ahead of the free-market
Liberals, with whom it has been in coalition. It is probable that the
coalition will continue in government.
- In the second round of a by-election in the southern city of Toulon,
France's far-right NATIONAL FRONT lost its sole seat in the National
Assembly -- by just 33 votes.
Enter the euro
Nationalism did not die with the birth of the euro,
not in France anyway. But the compromise over the
European Central Bank discredits more than the
French
IT WAS supposed to be a historic moment: the formal launch of Europe’s long-awaited
single currency, the euro, no less. And the summit meeting in Brussels last weekend did
indeed confirm that 11 countries—the entire European Union bar Britain, Sweden,
Denmark and Greece—would join the euro next January. Yet that decision took a mere ten minutes. It was overshadowed
by 12 hours of bad-tempered argument, chiefly between President Jacques
Chirac of France, Chancellor Helmut Kohl of Germany and Wim Kok, the
Dutch prime minister, over what should have been a minor matter—the presidency of the new European Central Bank (ECB).
The battle took place because 14 of the 15 EU countries wanted the job, which
the Maastricht treaty specifies should last for eight years, to go to Wim
Duisenberg, the Dutch president of the ECB’s predecessor, the European
Monetary Institute. But Mr Chirac—politically weak at home, and
constitutionally powerless to do much except in foreign affairs—saw this as an
opportunity to boost his fortunes by promoting France: he insisted on his
candidate, Jean-Claude Trichet, governor of the French central bank.
The shabby compromise that ended the row involves Mr Duisenberg being formally
appointed for eight years, but agreeing, “of his own free will”, to resign before his
term is complete, probably after four years. Then will come eight years of Mr
Trichet.
The French, strangely supported by Britain’s Tony Blair, who chaired the meeting, claimed that this solution would provide stability for the ECB for a full 12
years. The truth is that dividing the term of the first president clearly breaches the
treaty’s spirit, if not its letter. Moreover, despite its calm reception by the
markets, this affair has wounded both the ECB and Mr Duisenberg. It has not
called into serious doubt the bank’s initial anti-inflationary zeal—economic
conditions are improving and national governments currently favour
macroeconomic stringency—but rather it has damaged the bank’s credibility as
an independent entity for a time when conditions turn less favourable. If that were
to happen during Mr Duisenberg’s years, he might seem a lame duck, with little
public support. Accepting the job on these terms was hardly an act of
independence. And if during Mr Trichet’s? Given that rules were broken to get
him in, why have faith that they will not be broken to get him out or to pressure him?
In the shorter term, however, it is Europe’s current heads of government who
look worst of all. Mr Chirac wanted to show that the choice of the ECB head was
for politicians, not central bankers, to make. But he showed only his own
weakness: unable to back down for fear of losing face at home. Mr Kohl also
seemed ineffectual, not least because it was his Bundesbank president, Hans
Tietmeyer, who saved him from a worse deal that, by fixing a date for Mr
Duisenberg’s retirement, would have breached the treaty. As for Mr Blair, he
seemed unprepared and ill at ease. His chairmanship was widely criticised
afterwards, and his claim that the outcome merely endorsed Mr Duisenberg’s
long-held wish to retire early seemed risible in view of the 12 hours it took to reach.
The prospect of paralysis
Such weaknesses matter. The European Commission, the EU’s executive arm,
has lost much of its authority, so the Union has relied on its regular summits to
give it direction and sort out problems. But if it takes 12 hours of hard pounding
merely to pick one man for a job, what are the chances of future summits sorting
out far bigger—and more controversial—matters, such as agricultural and budget
reform, the Union’s expansion or relations with Turkey?
Nor is this the first time that European leaders have got themselves into a mess
over top jobs. In 1994 they wrangled at length over the commission presidency,
only to end up with a candidate nobody had originally wanted. They have still not
found a boss for the European Bank for Reconstruction and Development, which
has been leaderless for six months. Next year they have to choose a commission
president again.
Europe needs a better way of filling top posts. One change might be to abolish
the rule that such appointments must be unanimous. To make them by qualified
(ie, weighted) majority would not be a perfect arrangement—it would risk
trouble from an unhappy minority—but it might still be better than the present
system, which gives a single country the right to veto anyone it dislikes. A second
change would be to ban countries from nominating their own nationals. Some
such reforms will be needed before the EU expands. A club of 25 members may
otherwise never fill its top slots at all.
Wednesday Night #844 by Herbert Bercovitz
Edited by Diana Théabud Nicholson
May 6, 1988
This evening began as an assessment of the Europe of today, but
spread to several continents including Africa and North America.
Experts guided the discussions on world politics and economics as well
as those relating to the various specialized subjects. At the
end of the evening, most if not all guests left with the
belief that matters which had previously seemed somewhat
contradictory had been brought into sharper focus.
The European Common Currency:
Europe is doing phenomenally well.
The economic market has benefitted its members and investment
money from Southeast Asia is now pouring into Europe. The euro
will come into being on January 1, 1999. This is the culmination
of a post-war project that started in 1947. The 1999 birth of
the new currency will be its crowning achievement, although a
dual currency system will exist until the year 2002. The euro is
not about money, it is about peace and the consolidation of
Europe. Its principal purpose is to bind the Europeans together
so as to avoid war. The resultant financial stability will be a
welcome but secondary benefit.
Some skeptics suggested that the undignified brawling over the naming
of the head of the European Central Bank is an indicator that (as usual)
the French are not going to play ball unless they have the ball! The implied
sublimation - or at least diminishing - of the cultural particularities of
each nation also suggests that monetary union will not as easily accepted
as the bankers and economists may think.
Others questioned whether changes in governments could derail, or at least,
adversely affcet the progress of the union and, finally, whether the vision
of 1947, having taken 50 years to achieve, may not be a solution
to a problem that is no longer a preoccupation. To the latter suggestion, the
reply was that in 1900 Europe didn't believe that war would break out.
It is highly unlikely that the introduction of the euro will hit
a technical snag. The Hamburg group was formed in 1997 to plan for
technical problems. The only possible, but unlikely scenario
is a political snag. With a market larger than North America,
the euro has the potential of replacing the American Dollar as
the preferred exchange currency. (However, some experts are becoming
pessimistic about Europe, citing among other difficulties, the presence
of too many bureaucrats and tinkerers.) Because of the differences
between the American and European culture and environment and the
absence of cumbersome rules in the United States, this however,
is unlikely to happen.
from May 14th evening
"It will take a long time for the consolidation of European countries, but Europe has changed during the past ten years, made careful preparations for the future and has recovered to the point that permits governments to adhere to the Maastrecht criteria. European nations now appear to be prepared to surrender more of their sovereignty.
(Editor's Note: the discussion on this topic was considerably more bullish than that generated on the same issue last week - change in attitudes or change in discussants?)"
Yugoslavia:
On the next topic, we benefitted from the recent visit of our good
friend Dr. Misha to Macedonia. Much of his assessment (with the exception
of the sitaution in Kosovo) is encouraging.Although the Serbian government has responded in a more brutal manner than
necessary in Bosnia, the extent
of the tragedy although great, was not of the dimension originally
believed. The number of people previously presumed dead has been
reduced from two hundred and fifty thousand to about eighty thousand.
People have begun living together, but it will probably take another
six to eight years to see whether the healing process will continue or
whether a new war will breakout. The markets have begun to work again,
serving both Serb and Bosnian populations.
Kosovo is a more recent flash point. A wider conflagration is
possible involving  Albania and conceivably  Macedonia, as well as
perhaps Greece and Turkey. This possible new Balkan war has been
averted for the time being because the Albanians do not possess
the armaments required to fight a prolonged war and the Serbian
government neither needs nor wants one. As Albania becomes better
organized, this may change. This area of the world bears
watching.
South Africa:
Dr. John Shingler gave us an assessment of the recent political
changes in South Africa which shows a country in transition. He expresed
optimism that governance will improve with the departure of Mandela.
His successor is a far better administrator.
On the darker side, there is a high rate of crime, and corruption runs
deep in the police; these are likely to continue, and unemployment is high.
On the positive side, there is a strong financial infrastructure and a highly
energetic and dynamic population, although there is a "brain drain" problem.
Stability may be expected by the end of the first decade of the
new millennium. A middle class of between ten and twenty million
people will slowly emerge over the same time frame. Meanwhile, the musical talent
remains remarkable, readily available and a great joy.
Real Estate:
The real estate market is showing modest growth (4%), but new housing is growing
at a much greater rate. There is a trend towards "theme" development, i.e. not
only around golf courses, but also in areas where there is community and
intellectual activity, college towns for instance where baby boomers can continue
to flourish in retirement. One guest noted that in Florida there is a noticeable
increase in very large and expensive houses. The Southwest U.S. is a major area
with Las Vegas the fastest growing city in North America.
In Montreal the real estate market, particularly commercial, is improving;
it is the last undeveloped market and there is no longer any large "A" space
available. As business (aerospace, biomedical, telecommunications) is improving here, demand is rising. Foreign investors are looking at Montreal real estate with great
interest.
Reported by Michael Judson and Herbert Bercovitz
Edited by Diana Thébaud Nicholson
#843 Americas Apr 29/98 previous week
#845 Asia night May 13th. next week
Friday, October 16, 1998
PETER COOK Jawboning, yes. Jobs, no Brussels -- The U.S.-based Blockbuster video chain has had a big success in Italy and Spain. But, earlier this year, it decided to withdraw from 17 cities in Germany. It could not make money, the company's management explained, because one-third of German rentals are porn movies and it offered only family-oriented fare, and German law prevents video stores opening on Sundays or holidays.
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