Happy landing

The euro has made a smooth landing on trading floors all over the globe and a bold and brave gamble by 11 European countries has begun. I...

The euro has made a smooth landing on trading floors all over the globe and a bold and brave gamble by 11 European countries has begun. It is, as the world recognises, a historic moment. The goal is to integrate Europe economically and, eventually, politically and so wipe out all possibility of war.

Many European leaders still argue that political integration should precede economic union. However, the architects of the Maastricht treaty were persuaded that it would be virtually impossible to persuade their peoples of the advantages of giving up a substantial degree of sovereignty before they had enjoyed the practical, economic benefits. The measures which have boosted growth and competitiveness through the free movement of goods and services within Europe are now being reinforced by the launch of a single currency. For consumers it makes possible more choice through comparisons between prices, taxes and so on. As a major challenger to the dominance of the dollar in trade and financial markets, the europromises to bring higher levels of investment into the Eurozone and with it higher growth possibilities. The potential is enormous.

At its launch the euro represented a high point in four decades of effort to coordinate national economic policies. The determination and vision that have carried these countries so far will be needed in even greater measure to take them through the uncharted territory that lies ahead. In order to achieve monetary union national governments have ceded policy-making authority in key areas to the European Central Bank whose prime mandate is the maintenance of monetary stability. This process initiated by governments of the right has been continued by left-wing governments which are in power in several member countries of the Eurozone. The immediate challenge to the euro in a period of slowing growth and high unemployment averaging 11 per cent is both political and economic. Accepting the discipline which the single currency imposes on individual governments means that theycannot inflate their way to higher growth and more jobs. At the same time, failure to deal with rising unemployment levels and related popular discontent increases the risk of a nationalistic backlash against the euro and the integration of stronger and weaker economies that it symbolises. So even at its birth the euro presents the ECB and European finance ministers with a serious test. Longer-term there is the question of deciding on how best to manage inevitable conflicts between more centralised decision-making and the aspirations and different demands of individual countries. But these are not insurmountable problems. Having travelled so far so well, despite mind-boggling hurdles, the prospects for European unity are good.

For India the message contained in the euro is plain to see in the statistics. The combined GDP of Euroland is equivalent to a fifth of the world8217;s GDP and only slightly smaller than that of the US. It is the world8217;s largest trading bloc. In keeping with its economic power, Eurolandcan be expected over the years to assert itself strongly in international affairs and lend itself to the creation of a multipolar world order.