The euro: birth of an economic superpower?

By Jan Szilagyi

COURTESY CMUTUEL.COM

It's finally happened. For the first time since the days of the Roman Empire, most of Europe is united under a common currency. After years of planning, the lira, mark, and franc are out, and the euro is in. Leaders around the globe celebrated its birth by sending Europe their best wishes and hopes for the future—but Washington hardly cracked a smile. "Anything that is good for our European friends is good for us," said one obviously unenthusiastic U.S. official. And while debate rages across America as to whether the European Monetary Union (EMU) is a good idea or not, our government's official opinion seems to treat this groundbreaking economic event as if it were happening in another galaxy and had no chance of affecting the strong United States economy.

Since 1918, when Woodrow Wilson began campaigning for a League of Nations, the U.S. has supported a host of movements to unite the countries of Europe in a peaceful manner. After the second World War, when the idea of a kind of United States of Europe was proposed, Americans were skeptical of the idea that a continent whose history was defined by strife could suddenly live in peace and harmony. Would the Germans really unite with the French? The British? It seemed an outlandish thought. Yet, with the continent devastated by war, the idea began to seem less farfetched—and to seem more likely to receive support from this side of the Atlantic. With military cooperation, loans to rebuild the infrastructure, investments in the commercial sector, and legal advice, the U.S. appeared to be a good friend while helping Europe reach its set goals. Naturally, the reasoning went, a powerful Europe would be a powerful ally and would help take some of the heavy burden of world affairs off of America's shoulders.

So why hasn't the U.S. welcomed the birth of the euro with more enthusiasm, when it marks the biggest step toward European political union this century?

On one hand, there are economic reasons. The U.S. dollar is the world's most widely used currency, comprising the foreign reserves of 66 percent of all banks. However, the German mark, the French franc, and other currencies in the euro basket were considered exotic outside of the European market. The U.S. trade deficit has been of little concern to the government in the past, because it can always be financed by simply printing and circulating more greenbacks (to put it in very simplistic terms). As a former U.S. finance minister once remarked, the dollar was America's money and everybody else's problem. Thus, if the euro turns out to be a solid currency, it would present a strong alternative to the U.S. dollar. Fearing devaluation of the dollar, foreign countries would probably choose to keep some of their reserves in the new European currency—thereby increasing the risk of the dollar's devaluation. China, for example, might buy euros simply to lessen its dependence on the United States, and dollars might start coming back to us, raising our presently low inflation.

Europe, on the other hand, seems to enjoy being considered the U.S.'s successor as the world's leading economic superpower. Euroland, as the EMU countries are occasionally referred to, has a population greater than the U.S.'s and holds a greater share of world trade. If it weren't for its military weakness, Europe could become the world's No. 1 power. Although this might seem a little farfetched, it explains why the U.S. favors integrating Eastern European countries into the European Union. Such a move would weaken the EMU and help the U.S. maintain its current position.

Does the euro represent a danger to U.S. currency dominance? Or will it bring healthy competition, improving the efficiency of financial transactions across the planet? We can only hope that those who want the euro to fail have not based their judgment solely on its political implications, which is contrary to the spirit in which the project began. Unfortunately, these people usually hold all the strings in their hands.

Jan Szilagyi is a sophomore in Ezra Stiles.

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