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 for
business. As far as trade goes there will be no boarders. Countries that refuse
to trade in the Euro may have difficulties. At some point in time they will
receive payment for goods or services from an EMU country. If they are not
prepared to deal with the EURO they will loose business to competitors that are
prepared. Part of being prepared is having the financial software that is
compatible with the Euro and opening bank accounts so they can transact with
Euro currency. England has chosen not to enter the EMU. Many companies within
England will not be afforded this luxury. Trading abroad using the Euro will be
unavoidable, as many suppliers and business will fall under the EMU. It will be
a domino effect, in order for England’s business community to compete with the
rest of Europe; they will have to be EURO compliant. One such company in England
is Siemens. Siemens is a German based company that is one of the biggest
electrical engineering and electronics companies in the world. As far back as
1995 the England based firm started planning for the Euro. Euro project
director, Gerard Gent, says “the introduction of the Euro has a very positive
step towards economic conditions in Europe and the global competitiveness of the
region” (Euro case study: Siemens 1). Many areas had to be considered from a
business focal point, “they tackled a variety of…areas
including…purchasing, accounting…and data processing” (2). One of the
major concerns now is being able to convince their suppliers to be Euro
compliant. As of now no supplier or business is being forced to prepare for the
new currency but it is highly recommend. Some suppliers may be dropped in order
to keep operations running smoothly leaving behind the hassles of dealing
outside the Euro. Whether or not a business lies within the EMU running into the
Euro will be inevitable as time passes. Traveling in Europe will be less of a
hassle in regards to exchanging currency. For the time being people have the
choice to disregard the single currency until 2002 or they can embrace it and
possibly save some money.2 Almost all businesses are displaying Euro prices next
to the national currency. Travelers are then able to instantly see if they are
getting their monies worth without the need to use a calculator to convert
currencies. Pricing will be consistent throughout the EMU. People will be able
to compare the prices of similar items in different countries of the eurozone.2
Also people will not have the worry about of useless currency when crossing
boarders. The Euro will be legal tender throughout the EMU. For example, the
Euro check will be exchangeable into any of the currencies within the
“eurozone”.2 When they use Deutschmark checks within Germany they pay no
exchange fees. However, when they cash these checks in Paris France exchange
fees will apply An Euro check will be directly exchangeable with no exchange
fees all around the eurozone.2 Other than seeing Euro figures on their
statements business travels will not see much difference when traveling with the
Euro. Regardless of whether travelers will be crossing the region or on their
annual package vacation travel around the EMU will be different. With the
introduction of the Euro major changes will take place to the international
monetary system. The European Monetary Union, EMU, will create an area that will
closely resemble the Untied States in terms of magnitude of its domestic economy
and its degree of openness.3 Accounting for about 18% of the world gross
domestic product it mirrors the United States 18% as well. The eurozone accounts
for 20% of world exports against 16% for the United States and 10% for Japan.3
When imports are worked into the equation the United States holds 19% compared
to 16% of the EMU and 7% of Japan.3 Just by these figures the EMU is not just
our silent friends across the Atlantic. In order for the Euro to become an
international currency strength and stability of the Euro will have to be of
essence. Inflation in the area remains low and government deficit are expected
to decrease further under the provisions of the Stability and Growth pact.3
America’s net external balance, amounts owed overseas, continues to run large
deficits while Europe has a roughly balanced international credit position and
runs surpluses in its international accounts.3 (See graphs 1-3 below) Graph 1
Graph 2 Graph 3 (Graphs copied from AMUE Euro Newsletter No. 33: June 1998) The
Euro financial markets will not only be larger than the current national
European markets but also more diversified.3 Compared with the United States and
Japan, the weight of equity and debt securities markets is lower and the
relative importance of banking is far greater.3 With the implementation of the
Euro a new equalization will be created within the global economy. In order for
the Euro to become an international currency it will have to become strong and
stable. Only these attributes will allow the trust of the global market to vest
in the Euro. The stability and strength will have to come from the erouzone and
its market, proving the stability of this newfound union. With the widespread
use of the American dollar as an international currency and for holding
reserves, it is unlikely that the Euro will replace it as the new international
currency anytime soon. Europe does not have a centralized tax system to coincide
wit the Euro so it may not be so well suited for a single currency union. Maybe
in the future as Europe becomes increasingly integrated will with its economies
will it become the new currency standard of the globe. Many see the Euro as a
positive development for Europe the United States and world economy. The
European Economic Union will be the most ambitious economic projects undertaken
in this century, but it does have its faults. These faults will have to be
overcome or at least tamed in order for it to be a success. There are five major
concerns that will have to be addressed.  Sovereignty  The
Central Bank  Transparency  Who will be in control? 
Does one size fit all? Topping the list is the issue of sovereignty.4 Loosing
ones national currency is equal to giving up its national sovereignty. The
overall position is not whether or not which face will be printed on the
currency but is this one step too far down the road leading to political
unification?4 Will all of the nation states be engulfed into a European
super-state? What could be happening are the beginning stages of the United
States of Europe.4 The second issue that is of most concern is the Central Bank.
The European Central Bank, which has been conducting most of its business thus
far in secrecy, is not winning many points of its constituents. Its
seventeen-member council rules the bank. Six of them represent the ECB
leadership; the remaining eleven make up the governors and presidents of the
national central banks of participating countries.4 Some economists would like
to see a more centralized system and argue that the bank is keeping too much
power. With a system such as is in place, it might be difficult to react quickly
in time of a crisis. One other factor is the built in majority that the
individual national banks have, eleven to six, enabling them to gang up on the
leadership if the situation presented itself. Thirdly the lack of transparency
is of major concern.4 By keeping its proceeding secret the council argues that
the threat of political influence is reduced. If no one knows how a particular
council member voted then they would not have to be taken to answer for it. Its
seems with a policy such as the ECB is only answerable to is itself.4 Financial
markets may be excessively nervous because they cannot gauge the governing
council’s true thinking. The fourth concern of the implementation of a
solitary currency in Europe is that of who is in control?4 Officially the ECB is
independent and answers to no political nation. But can one council possibly
have the ability to control and balance eleven different economies at the same
time? Some say no, but if it can even succeed only a little bit what is good for
one economy may not be good for another. This leads into the final concern: Does
one economy fit all? When the economy is in the basement the first thing that
politicians ask for is a cut in interest rates. In the beginning this may give
the desired results but in the long run may entirely destroy an economy. It
becomes macroeconomics versus microeconomics.4 What is good for the economy as a
whole may not be good for every sector and region. What one can conclude by the
scheme of things that the Euro is going to happen. What the out come will be and
what effects it will have towards the economic world can only be speculated. The
entire world will be watching as the largest economic experiment of our time
unfolds before in front of us half way around the world.