And This!
Who's afraid of the euro?
Monday, May 4, 1998
By Peter Cook
BRUSSELS
BRUSSELS -- SINCE the days of the Field of the Cloth of Gold, Europeans have
been good at putting on a show. To the astute observer, however, the showier the
occasion the more reason there is to look for (a) a lack of substance, or (b) a lack
of support.
Conceived in controversy, Europe's Maastricht Treaty for European Monetary
Union (EMU) this weekend came to a glamorous, rancorous conclusion in
Brussels as the 11 countries that will be EMU's first members were hailed by their
finance chiefs, then by European Members of Parliament, and finally by heads of
government -- who then spent 11 hours in an unseemly argument over how
quickly the first European Central Bank (ECB) president should retire.
A dramatic performance, to be sure. But how many were watching, and with
what degree of interest?
This weekend's fights and resolutions are variously said to presage a new
currency that will from next year begin to challenge the almighty U.S. dollar; a
new deal for consumers and investors who will quickly be able to spot where
prices, costs and taxes vary in a market of 290 million people; the establishment
in Europe of North American-size capital markets and the diminishment of the
role of universal banks; and a sea-change in the economic respectability of the
likes of Italy, Spain, Portugal, and even Ireland and Finland.
Consequences, however, take their time to arrive. The immediate problem for all
concerned is that the euro and ECB are going ahead with almost no accolades
from plain folks. The irony of holding a Field of the Cloth of Gold to launch
EMU on May 1, Europe's cloth-cap Labour Day holiday, seemed to have been
lost on the leaders. Yet, the latest soundings show that in Germany, the supposed
heart and soul of single-currency Europe, more people are opposed than in
favour, and their opposition must have been strengthened by the fuss the French
put up over having their man head the central bank rather than Germany's choice,
Dutchman Wim Duisenberg.
In the process of getting the Maastricht Treaty approved in the early 1990s, it was
said that people were against it because it was complicated. Since then, much has
been made of it being an elitist exercise at a time when the popular concern is
with double-digit unemployment (during Saturday's wrangle, the press was at one
time briefed that, while France and Germany argued and Tony Blair played
umpire, the rest were in the lunch room sipping a 1986 Chƒteau Pichon
Longueville).
Since EMU has happened despite a lack of support, the obvious need in its early
operation is to reconcile people to it. But how?
If a majority is fearful of the euro, then the arrival of a regime of permanently
austere budget policies, of taxes that get harmonized upward, of a Europe-wide
monetary policy that is bound to worsen inflation or unemployment in certain
regions, of a common exchange rate that is too weak or too strong for some,
requires that there be adequate mechanisms for explaining policy and for an
all-powerful ECB to be held accountable. Maastricht's model, however, was a
kind of German Bundesbank-plus. When it comes to accountability, there is
nothing of substance there. And hence no obvious way of eliciting support and
getting people on side.
Worse still, a supranational central bank is always likely to be a tempting target
for national politicians that are unhappy with the state of their economy (and as
the French have been busy demonstrating, nationalism is a very vibrant force).
The euro's cheerleaders of this weekend are potentially the ECB's critics of
tomorrow.
Obviously, the ECB -- which starts life on July 1, and gets a currency to manage
on Jan. 1, 1999 -- cannot instantly inherit the prestige of a Bundesbank or a U.S.
Federal Reserve Board. It will have to work to earn it. And plainly it will not earn
much kudos if it is seen to be the plaything of the politicians (as the appointment
of its first president turned out to be). But to talk of its accountability is not to
prejudice its independence; proper accountability is the best friend of a free
central bank.
So will the new bank explain itself to the European parliament? Perhaps. Will it
publish minutes of its council meetings? There are no plans for this, and several
of the principals have spoken against it. Will its senior staff speak regularly, and
with authority, about where monetary policy is headed and why? Perhaps again.
Obviously, when it comes to the bank's relationship with its public, flesh has to be
put on very bare bones. And quickly. As governments have striven to obey the
economic disciplines set down for monetary union, Brussels has taken the blame
for too much austerity. In the apportionment of blame in future, it will be all too
easy to shift sights from Brussels to Frankfurt, home of the ECB, especially since
monetary union is not a popular exercise. If any one of 11 countries are not
performing as they should from next year, it could be the ECB's fault -- unless,
that is, the ECB swiftly develops the capacity to speak for itself and be believed. |
