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Algora Publishing - Europe's New Monetary Union Is a Historic Exploit
                                               For a Kinder, Gentler Society
Tuesday,
Europe's New Monetary Union Is a Historic Exploit
By Reginald Dale

WASHINGTON - Starting from the Declaration of Independence, it took the United States nearly 90 years to establish a fully fledged common currency, and a further 50 years to set up the Federal Reserve system in 1913.

When the European Union introduces the euro, backed by a European Central Bank, at the beginning of next year, it will have traveled the same distance in just over 40 years.

Of course, it is not an exact parallel. But the comparison is worth making if only because so many people forget how far, and how relatively fast, the Europeans have come since they began their postwar drive for closer unity in the 1950s.

As the debate over the single currency has intensified during the past two years, the focus has been much more on the economic and financial technicalities than on the momentous historical dimensions of the endeavor.

Yet, by any historical yardstick, the decision by I I West European countries to link their destinies in an economic and monetary union is an epoch-making achievement. And, in many ways, the Europeans face a harder task than the Americans did before them.

It will not be Europe's first try. European monetary unions have come and gone, in different shapes and sizes, and with greater and lesser degrees of permanence, for the past 2,000 years. The currency zone will be smaller than Roman empire, in which for centuries the silver denarius circulated freely in the Middle East to the Atlantic and from North Africa to the Rhine.

But it will be larger than Charlemagne's empire, which covered roughly the same territory as the six founder members of the European Union, and which also boasted a common silver coinage in the early 9th century. Both those unions, however, were largely the fruit of conquest.

What is unprecedented about the euro is that so many independent states are voluntarily pooling their sovereignty for the first time - not just in order to improve the mechanics of trade and currency flows, but to promote much deeper economic and political unity.

In the United States, the National Currency Act of 1863 helped unify America, then in the throes of civil war, by providing for the replacement f state bank notes of varying values by the greenback - in much the same way that national currencies in Europe will be replaced by the euro.

Some 19th-century Americans even th h that the Civil War might not have occurred if the currency had been unified sooner, just as many 20th-century Europeans have seen economic integration as the best way to prevent further fratricidal wars in Europe.

19th-century America, the greenback quickly became not only a major spur to trade but an important symbol of national unity. Many Americans at the time seem to have believed that the new do lar "had an important impact in he helping create a common national identity, " according to Jerome Sheridan of American University in Brussels.

Much the same role is now sought for the euro by its supporters in Europe. Of course, few Europeans that the euro will usher in a United States of Europe, at least in the near future. Europe's historical linguistic and cultural divisions are still too deep, its national instincts too strong, and public support for bold new steps to political unity too shallow. The Continent's past is still ever-present. Charlemagne' single currency was resisted most strongly by the very same two people - the English and the Danes - that insisted on official opt-outs from today's single currency nearly 1,200 years later.

For much of the past two centuries, French thinkers an, economists have consistently been among the most active proponents of European monetary integration. In the mid-19th century, Michael Chevalier, an economic adviser to Napoleon III, foreshadowed the creation of today's planned European Central Bank with uncanny precision.

"One does not see why the progress of commercial and political relations among the peoples of Europe should not lead to the creation of an international batik, which would have at least one seat in each of the great states," he wrote.

Britain has always been aloof. In the 16th and 17th centuries, England was notorious for its distrust of Continental monetary conspiracies against the City of London, and in the 19th century the English poured cold water on French backed proposals for a "universal money" linking Continental European currencies to the pound and the dollar.

To some, such signs of enduring national characteristics are reassuring. They suggest that Europeans will not quickly or easily lose their national entities in some kind of a faceless superstate. But they also inevitably raise the question of why the euro should work when so many previous attempts have failed. In the late 19th century, three European currency unions existed alongside each other - the Latin, the Scandinavian and the German - all of which eventually came to grief. In recent decades, the EU itself has demonstrated the difficulty of the task by adopting and then postponing earlier plans for monetary union.

So what makes the I I countries think they can succeed now? In the first place, previous monetary unions had much less solid foundations. The Latin and Scandinavian unions of the late 19th century were established for reasons of currency and trading convenience, not as part of a broader process of economic and political unification.

The original German union was destroyed by World War 1, but Italy's has lasted since 1861 and Britain's since 1707, when Scotland joined England in the Act of Union. The Belgo-Luxembourg monetary union has lasted since 1923, and the currencies of the former East and West Germany were merged in 1990.

The I I -nation union now planned is, Of course, far more ambitious than any Of its recent predecessors, and its membership will be much less homogenous. It would probably not be possible at all without the cataclysmic experience of World War II in which all the European combatants except Britain suffered either occupation or defeat, or both.

Today's circumstances are much more auspicious than when the then European Community concocted its initial plan for monetary union in the late 1960s and early 1970s, with a target date of 1980. That effort was blown apart by the first international oil shock and the Europeans' ragged response to it.

In those days, too, as Peter Kenen, an economist at Princeton University, has pointed out, fixed exchange rates were no longer fashionable and most European governments were still using capital controls. France and Germany for years engaged in a bitter doctrinal argument over whether economic union should precede monetary union, as Germany insisted, or vice versa, as France proposed.

Now, that argument has been settled, broadly in Germany's favor. Over the past 15 years or so, Europe has achieved an unprecedented degree of economic convergence.

It has also, since the European Monetary System was established in 1979, gained much more experience of relatively fixed exchange rates.

In contrast to the 1970s, there is now wide agreement on the importance of price stability and central bank independence. And in a more competitive, globalizing world economy, the advantages of forming a larger and stronger monetary bloc have become more obvious.

History, it has been widely noted, is moving faster. After the United States adopted its single currency, it took more than half a century for the dollar to oust the pound as the world's leading currency.

No one is expecting the euro to mete out a similar fate to the dollar in the foreseeable future. But in the quick moving world of the early 21st century, it is unlikely to take the euro nearly as long as the dollar to establish itself as a major world currency.

REGINALD DALE is a columnist based in Washington for the International Herald Tribune.