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Strategies & Market Trends : Currencies and the Global Capital Markets -- Ignore unavailable to you. Want to Upgrade?

To: maceng2 who wrote (3222)	1/12/2002 6:05:54 PM
From: Henry Volquardsen	Read Replies (1) \| Respond to of 3536

not so much advantages but bringing them on a par with the US in certain areas. Pan European corporations will now have an easier planning environment as they won't need to worry about multi currency issues. It will therefore help in creating a more seamless Continental commercial environment. The idea of a unified European currency is not a bad idea. It is inevitable. Things like labor mobility etc are problems but not insurmountable. My problems with the Euro come from how they are getting there. The ony way, imo, for a unified currency to succeed is for there to be a unified fiscal policy. And ultimately that means political union, something the European people, although not the political elites, is unwilling for. As long as there is no political union there will be divergent economic policies. This will inevitably lead to tensions within the system that the lack of an exchange rate shock absorber will not be there to deal with. It is clear the ECB will manage monetary conditions in response to the large core economies, specifically Germany and France. That leaves the satellite economies to try and manage their economies only with fiscal policy. This will lead to an increasing cycle of boom and busts. Initially it was boom as the satellites boomed in response to lower interest rates so no one complained. But the satellites will hit a down slope. The ECB could say 'so be it, eventually the process will force convergence. But will public opinion in those countries accept the pain or will they force the government to adopt fiscal policies that will provide short term relief but exacerbate the long term problem? That IS what happened in Argentina vis a vis the US. Europe hopefully won't get as bad as Argentina but the possibility is there. The problem with the Europe is not the concept but the execution and the belief that a unified currency alone is a magic bullet that will create convergence.