NCPA - National Center for Policy Analysis

The Challenge Of The Euro

January 4, 1999

International economists are closely watching the advent of the euro -- the new common currency linking 11 European nations. Among other issues, they are debating whether the euro will alter the world's balance of power and dethrone the dollar from its position as the dominant currency of global exchange.

Here are some predictions and observations from experts:

  • Jeffrey E. Garten, dean of the Yale University School of Management, calls the launch of the euro "a transforming event," and believes Europe's renewed sense of financial confidence will make it much more of a power to be reckoned with even in nonmonetary areas.
  • A number of respected European economists reportedly question the European Monetary Union's sustainability in the face of high unemployment and slowing growth -- and some analysts fear a nationalistic, extremist backlash if EMU doesn't deliver growth, prosperity and jobs.
  • Adopting the euro deprives governments of the possibility of devaluing their currency to jump-start their economies -- thereby heightening pressure to adopt tough structural reforms, such as cutting back on their welfare states.
  • Some business leaders think the euro will encourage firms to simplify and homogenize their product lines -- developing similar products that sell at similar prices.

Observers say a collapse of the EMU is unlikely. But in order for it to succeed, unemployment must be brought down. And that means the 11 countries involved must adopt market reforms and rid themselves of antiquated and restrictive labor policies.

Source: Thomas Kamm, "Emergence of Euro Embodies Challenge and Hope for Europe," Wall Street Journal, January 4, 1999.


Browse more articles on International Issues