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To: Alex who wrote (10882)	4/28/1998 7:02:00 PM
From: goldsnow	Read Replies (1) \| Respond to of 116762

FEATURE-U.S. silence on EMU masks concern 02:01 a.m. Apr 28, 1998 Eastern By Knut Engelmann WASHINGTON, April 28 (Reuters) - As Europe inches closer to merging its national currencies, Washington has maintained a stony silence on the entire issue. U.S. officials are caught between a rock and a hard place. While the Europeans would like their American partners to support their dash to form a monetary union in 1999, the continent's leaders remain sensitive to anything that might be construed as criticism of their economic policies. ''It's a no-win situation,'' said a source close to the U.S. Treasury. ''But of course silence does not imply hostility or indifference.'' Not surprisingly, public comments from the Treasury or the Federal Reserve on Europe's economic and monetary union (EMU) project have been scarce. The EMU debate in Washington is shrouded in so much secrecy that not even economists who advise U.S. officials on the subject want to see their names in print. In February, 11 European Union member governments released statistics to prove they would meet the strict economic criteria for adopting the single currency known as the euro. But at a meeting of finance ministers from the Group of Seven top industrial nations in London just days before the data was released, concern over Japan's weak economy completely overshadowed a brief discussion of EMU. Treasury Secretary Robert Rubin's most far-reaching comment on the single currency was noncommittal at best. ''The euro risks taking attention away from the requirement of structural reforms in Europe,'' he said. His previous comments on the topic have been similarly restrained. ''I do not think it is for us to have views,'' Rubin said once when asked what he thought of Europe's move to EMU. GREENSPAN ALSO COY Officials privately say they learned their lesson years ago when they dared to comment publicly on the chances of EMU's success and almost immediately had to field calls from irate European officials asking them to mind their own business. Fed chairman Alan Greenspan has been just as shy on EMU as he usually is when it comes to the subject of U.S. interest rates. When lawmakers asked him at a recent hearing what he thought of the project, he answered that EMU was likely to raise living standards in Europe -- if it succeeded. Behind the scenes, analysts detect a deep-seated angst that Europe's currency union may upset the world of freely floating exchange rates, which in the U.S. view has served the world economy so well, unless the continent shows a real commitment to reforming its economies. ''Most people in Washington think EMU will happen and that it will survive the first two or three years, but beyond the year 2005, you have very divergent views,'' said David Hale, chief economist at Zurich-Kemper Investments in Chicago. Proudly pointing to rosy economic conditions at home, U.S. officials have left few doubts what they want to see in Europe -- swift reform of overregulated labour markets and antiquated welfare systems to fight record unemployment rates. Whether they have any reason for optimism on that account is another question. Analysts say an upcoming general election in Germany, the most important of the EMU candidates, is likely to delay any reforms in that country until at least next year. ''Europeans do like their welfare state,'' said one. U.S. SEES EUROPE STILL DIVIDED OVER EMU European officials visiting Washington find themselves being peppered with questions about the long-term viability of the single currency and the prospects for lasting convergence of the continent's vastly diverging economic structures. ''Those who just a year ago said that EMU will never happen now have changed to say -- well, it will happen, but will it last?'' one visiting European parliamentarian said recently after a round of meetings at the Treasury and the Fed. A much-publicised call by 155 German economists to delay EMU because the conditions were not yet right for it stirred much interest in Washington and reinforced a belief that the continent remains deeply divided on the issue. Treasury officials privately admit they are worried about the ability of European countries, each with their own language, history and politics, to see through the kind of changes required for them to speak with one voice and develop a common approach to monetary and exchange rate policy. Few would go as far as Martin Feldstein, a widely respected scholar on international economics, who warned the creation of EMU and a strong political union in Europe could lead to armed conflict between the United States and Europe, between Russia and Europe and even within Europe itself. ''If EMU occurs and leads to a (strong) political union in Europe, the world will be a very different and not necessarily safer place,'' he wrote in a gloomy analysis for ''Foreign Affairs'' magazine, headlined ''The Euro and War.'' But concerns are clearly there, if on a somewhat smaller scale. One of the questions officials have been trying to answer -- unsuccessfully so far -- is their future relationship with individual European finance ministries. ''It's pretty clear whom Greenspan will call if there is a problem, namely the head of the European Central Bank,'' said one. ''But it is much less clear whom Rubin will call.'' CAN THE EURO RIVAL THE DOLLAR? The idea that the euro might pose a serious threat to the dollar as the world's reserve currency of choice has caused considerably less concern in Washington's corridors of power. The idea that the euro could quickly become a strong international currency which rivals the dollar has been gaining adherents among European policymakers and business leaders of late. But as long as the U.S. economy remains strong, U.S. analysts and officials agree, there is little the dollar has to fear. ''The dollar's supremacy is ensured for the time being just because of the sheer size of the U.S. financial system,'' said Zurich-Kemper's Hale. Treasury Secretary Rubin, speaking at the spring meetings of the International Monetary Fund and World Bank was equally optimistic. ''I don't think that it's going to adversely affect the position of the dollar, either as a reserve currency or with respect to the use of the dollar in international finance,'' he said. ''The ultimate question of whether the euro and EMU ... are good for Europe is something the Europeans are best equipped to judge and they've clearly made the judgment that it is.'' ^REUTERS@