Economics 26121

September 18, 1999

The Euro

To most people in the United States hearing the word Euro brings about blank stares. Ask this same question in England or another European country and it means bringing Europe together under one common currency. The Euro can be defined as the common monetary system by which the participating members of the European Community will trade. Eleven countries Germany, France, Spain, Portugal, Ireland, Austria, the Netherlands, Belgium, Luxembourg, Finland and Italy will comprise the European Economic Monetary Union that will set a side their national currency and adopt the Euro in 2002. A new National bank, based in Frankfurt Germany, will be constructed and the interest rates that control the economies of these nations will be in the hands of this new system. It is indeed a great experiment, being masterminded in Frankfurt, one that will be felt through out Europe as well as the rest of the world.1

The combined countries, now more commonly referred to as Euroland, will fall under one national bank. This bank, the European Central Bank, will determine the economic fate of the entire "Union". The merging of eleven currencies is a daunting and somewhat lethal task. The ECB is comprised of seventeen members, each having one vote within the governing council. What has most Europeans concerned is the ECB’s secrecy of conducting business. There is no voting record nor will there be published minutes of the meeting that take place. Wim Duisenberg president of the ECB and a native Dutchman stated that he wanted the ECB to be one of the most open banks in the world.1 When BBC reporter Steve Levinson confronted him about this in Frankfurt Germany Wim replied

I reconcile these two positions by not defining openness as publishing everything that will be available, but by defining openness as explaining every decision, every consideration. Also the pros and cons and to be very open about that and to be frequent and immediate in that openness. (Livinston, Euroland 3)

Why does the ECB operation so much secrecy? Is does not want economic policy moved by political influence. In January of this year the Bank of Ireland became a regional branch of the ECB. Morris O’Connell, its governor, supports the ECB’s tight lips stating

I don’t think it’s appropriate that you should be announcing how each person may have voted. I think you’re creating other pressures then, you’re creating pressure on individual members to reflect just the national viewpoint. Where we are required under this treaty to take a European perspective on things. (Livinson 5)

This treaty O’Connell refers to is the Maastrich Treaty. It is the foundation for holding together the ECB and the fait of the Euro. It was constructed in such a way that is completely out of reach of the politicians. This way, national views of one country will not effect the entire economic view of the European Economic Monetary Union. One view is certain now, the Euro will happen and the ECB will be driving the train.

What is good for the whole may not be good for the parts. This statement sums up the difficulty of bringing the Euro into reality. Topping the concern is the setting of interest rates through out the EMU. Interest rates normalize any economy and are the foundations of them as well. But does one interest rate in Ireland function the same in Germany? When one economic country is in economic crises how will the ECB react? These are just a few of the many economic problems that will have to be solved, as the day of the Euro becomes closer and closer.

Both businesses within the European Economic Monetary Union and outside of it as well, will feel the impact of the Euro. Although currency has yet to be coined, today trade using the Euro has begun. The conversion rates have been set for the eleven nations that will partake. If business outside of the EMU thinks that they will be unaffected by the Euro they have a surprise in store. When it fully takes effect all trade for gods and services will be conducted with the Euro. Companies that trade within the EMU will no longer have to worry about costly conversion rates and delays that is inherent when using different currency