The euro: One currency -- but still 11 different nations
By Charles Hodson
In this story:
May 1, 1998
CNNfn Anchor and Correspondent
Web posted at: 11:10 a.m. EDT (1110 GMT)
LONDON (CNN) -- It has been in many ways a dream, this new
euro that is soon to become the currency of 11 European
nations. And, in the nature of dreams, the outlines are clear
enough, but the details are a bit murky.
For generations, Europe's leaders have longed for the day
when their people could move from country to country with a
single currency in their pockets, freed of the cost and
trouble of changing money as they cross borders.
That day is now a set date: January 1, 2002. Then, barring
any last-minute loss of heart or change of plan, 11 of the 15
members of the European Union will introduce the euro as
their common system of banknotes and coins.
And well before then, monetary union will take practical
effect. Just seven months from now, on January 1, 1999, those
11 nations will "lock" or fix their common exchange rates.
The currency will be phased in on a consumer level in the
The euro is to become the legal tender in Germany, France,
Italy, Spain, the Netherlands, Austria, Belgium, Finland,
Ireland, Portugal and Luxembourg.
This weekend, the European Union is formally designating the
nations participating in the euro at a summit in Brussels.
The four other EU members -- Britain, Sweden, Denmark and
Greece -- will stick with their own currencies for the time
Challenging U.S. economic dominance
Creating monetary union has taken Europe quite some time, but
its impact on the rest of the world will be sudden and
Literally overnight, what's been dubbed "Euroland" will
become a currency bloc of a size formidable enough to
challenge the dominance of the United States.
Euroland will account for about a fifth of world trade --
more than the United States. Its 300 million people will
produce a quarter of the global gross domestic product, about
the same as the United States and its population of 270
Perhaps most importantly, the participating members of the
European Union will enjoy something that has enriched the
United States for two centuries: a single vast domestic
market and a single currency.
Business will benefit first. While initially companies will
still have to pay fees to exchange money, as well as keep
their accounts in both euros and their existing currencies,
they will be relieved of the costly uncertainties that stem
from exchange rate fluctuations.
At the same time, fixed exchange rates and a gradual shift to
the euro will make price and cost differences across borders
clearer, making for keener competition that will benefit
businesses and consumers alike.
All aboard, but who's driving?
With such clear benefits, many advocates wonder why it's
taken Europe so long to give monetary union a try.
The reasons go back to the elusive details of the original
dream. Euroland fits into a small space on the world map, but
it has had -- and will continue to have -- 11 different
economies, run by 11 different governments.
To bring them all into line to make the euro feasible, their
governments have spent the mid-1990s struggling to cut budget
deficits, pay back debt and reduce inflation to agreed
levels, known as "convergence criteria."
But many economists say these criteria have been interpreted
too liberally because politicians, many of whom have staked
their reputations on monetary union, want to squeeze in as
many nations as possible. And already there are fears that
old habits of financial laxity in some countries will return
to make the euro weak and unstable.
And since the single currency stretches from Tipperary to
Trieste and from Cadiz to Kiel, the 11 different economies
that are linked by the euro likely will still react to
outside shocks in 11 different ways.
A number of economists and politicians already forecast one
major problem -- the rigidity of Europe's labor markets. They
say excessive regulation and excessive benefits for existing
workers already keep unemployment high in continental Europe,
and the euro will make matters worse by restricting policy
Policy decisions such as the pivotal matter of setting
interest rate policy will be entrusted to a new European
Central Bank that will enjoy a degree of independence similar
to that of the U.S. Federal Reserve.
Doubts are shared by at least some of the people affected.
Opinion polls in Germany, whose government support of the
euro has been instrumental in its implementation, show nearly
two-thirds of the people surveyed want to keep the deutche
And in Britain, so-called "Euroskepticism" has been strong
enough to keep the country on the sidelines of monetary union
in a wait-and-see stance.
As the euro proceeds, some economists say nations such as
Britain will ultimately be forced to join as a matter of
Whatever the outcome, visitors to Europe nostalgic for heavy
pockets full of different coins can still pack all those guidebooks. After all, it's one single currency -- but still 11 different nations.