NCPA - National Center for Policy Analysis

European Union Progressing Despite Setbacks

December 21, 2000

Despite the fall of the euro and the failure of the recent European Union summit to reach an agreement on sharing power, observers note Americans should not easily dismiss the Union as a shaky experiment.

  • Europe is growing at an annual rate of four percent, and unemployment is at last falling.
  • Because of the euro, Europe has entered a period of financial tranquility compared with the recent past, when countries kept interest rates damagingly high to maintain currency parity with the German mark.
  • Europe weathered the financial crises of the 1990s because the euro stabilized European financial policies.

Economists point to the fact that while fragmented markets made up of single countries can't sustain innovation and creativity on a large scale, an economically united continent can, which is precisely the experience of the United States - - a continent-wide market with a single currency, a common language and no tariff barriers.

As for the impact on the U.S. of a stronger Europe, in recent years the high value of the dollar kept import prices down and attracted capital even as the trade deficit soared. If the euro provides serious competition for the dollar it will not be as easy to import capital and keep interest rates low. But, observers believe, on balance a strong European Union will provide booming markets for American companies and may help keep domestic economy growing. And national security is enhanced with Western democracies that are economically strong.

Source: Jeff Madrick, "Economic Scene," New York Times, December 21, 2000.

 

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