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Johnson  |
FROM LONDON |
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Federalism |
 Standing firm on the pound |
England hangs back as most
of Europe goes for the Euro
By MICHAEL JOHNSON
of TheColumnists.com
The once-dashing former British Prime Minister Ted Heath, who at 86 has sadly morphed into a doddering old mudslide of a man, will always remain in my memory for a hilarious routine I once saw him perform to an audience of europhiles. It was 1985, Europe was campaigning for a common currency, and Heath believed the fast track was the only way to go. No agonizing transition period would be workable, he argued.
To make his point, he demonstrated the confusion that a grocery store in Brussels might face trying to handle a sale during the proposed year of adjustment to the ecu, as it was then known. The more timid politicians were advocating a go-slow policy and some wanted all European currencies to be honored by retail shops for a year or two.
This brought out Heath’s wonderful talent as a performer. Bustling about the podium and digging for change in his pockets, he acted out the chaotic scene, telling the customer breathlessly: “I’m fresh out of euros, madame, but I can give you 14 pesos and three deutschmarks, or if you like you can take French francs with a few Irish punts thrown in.” His pro-Europe audiences loved it. They couldn’t wait to ditch their currencies and create something entirely new.
Heath today spends his time quietly in his modest home alongside Salisbury Cathedral where he once played the organ and conducted orchestras, but he must be delighted to see that Europe is finally going his way--plunging headlong into the greatest economic experiment the developed world has ever attempted.
This single currency concept has been kicking around for 25 years, creating dreams and nightmares for politicians while also shoring up and destroying governments. Clearly the europhiles have now won the day.
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advocate of a common European currency |
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Their victory means that more than 300 million inhabitants of the 12 countries (and every American who travels to those countries) will need a crash course in the euro very quickly indeed. Most local currencies involved are expected to die a natural death in the first two weeks of the New Year. Within two months they will all be officially decommissioned and dumped into furnaces. The countries in the new eurozone are Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain. Only three members of the European Union - Britain, Denmark and Sweden--have opted to stay out and watch for a few years to see what happens before deciding whether to make the euro gamble.
For details, have a look
at the official euro website:
www.euro.ecb.int/.
I used to cover this story for Business Week and later as editor of International Management magazine, and was always unsure about the idea. Yes, it creates a huge unified market that will make cross-border selling much easier, but it also creates a new economic playing field full of unknowables.
Money is not just coinage and printed paper. It represents all the levers of economic policy, and that’s what governments manipulate to stay in power. One does not usually experiment with such basic functions. Until now.
Suddenly 12 governments are amalgamating their main source of legitimacy. This scares the wits out of the British, who fear federation with peoples who eat garlic and wear funny hats and leather shorts. Some of them don’t even speak English. Although Tony Blair is attempting to change this attitude, for many Brits, “federalism” has become the ultimate f-word.
On a more emotional level, it also means everyone in these countries must abandon their national currencies and all the historical baggage and sentiment that goes with them. After sex, what do we think about most of the time? Money, and we measure it in our local currency, which we love to play with, to jingle in our pocket, to roll around in, to throw in the air.
Will ordinary people love the euro as much as they love the franc, the guilder, the lire? Try this. Can you imagine the North American Free Trade Agreement bureaucracy creating a common currency including Canada, the United States and Mexico? No more dollars, no more pesos, just some synthetic creation probably called the noram. I can’t see it.
People have survived currency changes before. Devaluations usually delete one or two zeroes as new banknotes are issued. Argentina is introducing its own new currency now. Sometimes citizens are quick to respond, sometimes not. In France, for example, change comes slowly. French people over 60 still tend to think in “old francs”, and do some quick mental math to get to the modern value. This has been going on since 1959 when old francs were superseded by new francs. Every once in a while a bank in Paris makes news by intercepting a check from an elderly lady who has mistakenly paid out 10,000 francs instead of 100 francs.
But this is no mere devaluation. This is big bang. The eurozone is a new universe.
The major unknown is how governments will manage to establish a cause-and-effect relationship on how their actions impact their voters. By definition, local power is grossly diluted. Money and the cost of credit (the easiest way to get more money legally) are controlled by economic policies that are devised to affect local conditions.
But from January 1, participating countries lose control over two of the most sensitive tools they had at their disposal--the ability to set their own interest rates and the ability to play around with the national budget, including surpluses and deficits. All these countries must now run their economies along pre-set guidelines regardless of local conditions. Greece and Germany, Italy and the Netherlands, must somehow make their economic performance data converge.
Strangely, the European press is filled with chirpy feature stories about the logistics of printing and minting. The designer of the banknotes, the Austrian Robert Kalina, has become a household name. Some 10 billion notes have been printed and distributed to banks. Wow.
The truth is that human interest story pales in comparison to the impact the euro will have on how Europe is governed from now on. We can only imagine the strains that will emerge within the first year as tight money leads to slower growth in the weak economies which leads to unemployment which leads to unhappy citizenry.
But let’s be optimistic. The positive effects might also be what Europe has not had since the Holy Roman Empire: a unifying force that will allow Europeans to aggregate their fragmented peoples. If they can find economic common ground, the new political force will be something quite formidable. Washington will find a unified Europe much more difficult to dominate. As a trading bloc, Europe gains a powerful voice.
On the practical level, Europeans can more easily shop around for big items such as cars, and compare prices euro-for-euro. The credit card had already brought us part of the distance, but now you won’t even need to change your money to pay cab fare.
How this all plays out will depend on the Europeans’ willingness to set aside national interests for the greater good of the eurozone. Ted Heath’s enthusiasm notwithstanding, I have yet to see any such selfless attitude emerge among the bulk of these highly nationalistic individuals. But it’s time for the europhiles to have their say.
It can’t fail to be engaging.
© 2002 by Michael Johnson. The cartoons are from IMSI's Master Clips Collection, 1895 Francisco Blvd. E., San Rafael, CA, 94901-5506, USA.
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