<European economy> Euro to kick-ass EU's economic fortunes.
Lee:
Here is a what 'they' say about the Euro,EU and the general direction their economy will take in the future.Quite lengthy but very interesting.If the forecasts pans out it should suit DELL quite nicely I might add.
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Euro Will Help Europe Become an Economic Superpower
Brussels, Dec. 21 (Bloomberg) -- After a half-century of trying to knit together a single economy to rival the U.S. as a commercial superpower, Europe is finally doing it.
Even before the European Union introduces a common currency in 11 member countries Jan. 1, the currency, called the euro, has transformed Europe. It has led governments to curb their deficits and encouraged businesses to merge as they prepare to compete in a unified market from the Arctic Circle to the Mediterranean.
As the euro is introduced, economic growth in the Euro-11 is accelerating, interest rates are falling and inflation is steady. Unemployment is at a five-year low, and EU-wide consumer and business confidence indexes are rising. Economists and business leaders attribute these advances in large measure to the fiscal discipline required by the EU before the euro debuts and to the outlook for the unified economy afterward.
''The euro has a life of its own even before it exists,'' said Maurice Lippens, the co-chairman of Fortis, a Dutch-Belgian bank and insurance company.
A surprisingly painless transition to the euro, however, masks fundamental tensions within the 11 nations that will make up the $6.5 trillion ''euro economy.'' Clashes between those who advocate unfettered markets and those who contend governments should actively manage their economies could strain the system in its early years.
Economies Rebounding
The 11 nations that will adopt the euro -- Germany, France, Italy, Belgium, the Netherlands, Luxembourg, Finland, Austria, Portugal, Spain and Ireland -- embark on their experiment with one in 10 workers unemployed, which increases pressure to spur growth with interest-rate cuts even at the risk of inflation.
But the Euro-11 economies are growing at their fastest pace in a decade -- an estimated 3.0 percent in 1998 and 2.6 percent next year, despite recession in Asia and a slowdown in the U.S. That, together with coordinated cuts in benchmark interest rates on Dec. 3, have put the project on a sounder footing than seemed likely amid recession a few years ago.
At the same time, consumer prices are rising 1.0 percent a year, the slowest rate in half a century. This has let central banks cut interest rates, helping Europe's welfare states narrow budget deficits and reduce national debts, and fueling a record- setting run for stocks and bonds. Unemployment, at 10.8 percent of the workforce, is more than twice that of the U.S. and Japan, but still the lowest rate in Europe in five years.
Clashes In Past
Still unclear is whether the biggest euro-based countries will see eye-to-eye on running a unified economy. Germany and France, the biggest and most important countries, have clashed in the last few years over such basic issues as industry subsidies, government jobs programs and political control over theeconomy. Both are suspicious of the third-largest country, Italy, with its history of shaky finances and revolving-door governments.
Another sticking point is how the long the U.K., the biggest of the four EU member countries retaining their own currencies for now, will shun the euro. Britons have opposed monetary union for years, but an EU poll in September found 53 percent of U.K. citizens favored the euro, the first majority ever.
Business Responds
The coming of the euro helped prompt Europe's biggest merger, Zeneca Group Plc's $36.7 billion takeover offer for Astra AB of Sweden this month. Astra-Zeneca's designated chief executive, Tom McKillop, said a common currency will ease price comparisons and increase competition, making it necessary to ''really build one of the world's big companies.''
Such convictions make investment banks undisputed winners in the euro transition. Concern about stiff competition in a unified market, along with pressures to boost shareholders' returns and cope with slumping raw-materials prices, pushed European mergers to a record $750 billion this year. Bankers expect more in 1999.
Banks will be on the front lines when the euro begins as a system of permanently fixed exchange rates among the 11 member currencies. Those rates will be set close to prevailing market rates on Dec. 31 and take effect on New Year's Day.
Money-changing windows and markets won't reopen until Jan. 4, however, and the three-day changeover weekend will keep as many as 50,000 traders, accountants and computer programmers chained to their desks in London, the hub of European finance. Citigroup Inc.'s Salomon Smith Barney Inc. reckons that it has to redenominate 50,000 trading positions into the new currency.
Until euro banknotes are introduced in 2002, the euro will function as virtual money, a unit of value for stocks and bonds, electronic transactions, credit cards and checking. Bank machines will dispense marks, francs and pesetas, but will electronically record deposits, transfers and withdrawals in euros.
At a stroke, the Euro-11 economy will become second only to that of the U.S., and the electronic euro will become the world's No. 2 reserve currency after the U.S. dollar. The 11 constituent currencies account for 19 percent of global reserves, lagging the dollar's 70 percent.
Looking Ahead
Greece, which failed the economic tests needed to qualify for the first wave of monetary union, has said it hopes to join by 2002. At the same time, Britain is likely to be scheduling a referendum that Prime Minister Tony Blair promised when he was elected in 1997.
If, as expected, Britons vote to join, analysts said the two other holdouts, Sweden and Denmark, would find it impossible to resist any longer because then almost all of their major trading partners would be using the euro.
As plentiful as they are now, euro optimists were in short supply after the 1991 summit in Maastricht, Netherlands, that got the project rolling. Then the continent was headed into recession and the betting was that if monetary union happened, it would be limited to Germany and France and their immediate neighbors.
Maastricht produced a new economic order for Europe a year after the end of the Cold War had created a new political order. The strategic rationale for a common currency was that a unified Germany would give up the deutsche mark, symbol of its commercial might, if France and the rest of Europe agreed to play by German rules for managing the economy.
What to Do?
Rule No. 1 was to set up an independent central bank modeled on Germany's Bundesbank with a mission to fight inflation. Other tests of single-currency eligibility -- restrictions on budget deficits, national debt, exchange-rate fluctuations and the level of long-term interest rates -- flowed from the German obsession with price stability.
The Bundesbank -- dubbed ''the bank that rules Europe'' in a 1992 book of that title -- dominated EU monetary policy from the time the union was formed, and resisted political intrigue over the selection of the European Central Bank's president.
France fought to win the post for a French banker, backing down only after Germany's preferred candidate, Wim Duisenberg of the Netherlands, agreed to retire early. Duisenberg has since said he may stay for his full eight-year term after all.
Under the Dutchman, the ECB has shown it will be a different animal than the Bundesbank by orchestrating rate cuts in all 11 euro countries earlier this month, a month before formally taking control of monetary policy.
Economists said the cut was an effort to spur the economy, in the way American central bankers see inflation as the first among several concerns rather than the overriding consideration, as Germans tended to do. Allan Saunderson, editor of Frankfurt Money Strategist, said the move suggests the ECB sees itself as a ''euro-Federal Reserve and not a euro-Bundesbank.''
Here's the Rub
Italy's refusal to bring its rates down to the same level as other euro countries hints at difficult problems ahead. While the Bank of Italy did cut its benchmark rate to 3.5 percent from 4.0, it declined to join others in cutting to 3.0 percent, citing domestic economic concern about money-market liquidity.
That the resistance came from Bank of Italy Governor Antonio Fazio instead of an elected officials suggests divisions among bankers may pose as great a threat to the ECB as the meddling of center-left politicians seeking to cut double-digit unemployment rates that may cause them to lose their next elections.
A fall in the jobless rate also is important to boosting the popularity of the euro, now favored by 66 percent of Europeans, according to the EU.
Economists blame European joblessness on high payroll taxes, fixed workweeks, rigid training systems and other ''structural'' problems. And, unlike American workers, Europeans face language and legal barriers that prevent them from shuffling around the continent to find jobs if their local economy goes sour.
These issues and the lack of an EU-wide system to transfer tax revenue from fast-growing to weaker regions pose difficult, potentially volatile problems for European policy makers.
Some people, notably Martin Feldstein, a Harvard University economist, have argued that the elimination of exchange rates to buffer economic shocks increases the risk of war.
Others, including Helmut Kohl, whose 16 years as German chancellor made him Europe's longest-serving postwar leader, contend only a single currency will avoid another European war.
One thing is certain: Europe has been at peace for the half- century it has taken to get this far.
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