THE EUROPEAN MONETARY UNION

R. Tamames, September 1997

 

1. Understanding the Treaty of Maastricht

 

The topic of the Monetary Union (MU) regarding the process of European integration can be developed through a series of eight following sections, which can be dynamically and comprehensibly articulated for those who do not have a previous understanding of this subject, whose importance on a European and world scale it is unnecessary to point out.

 

First of all in our reflection we shall make an appraisal on the evident reluctance to understand the Treaty of Maastricht (and now Amsterdam), most outstanding in Southern Europe and some non-Community countries as well. While it is true that initial aversions have been worn down, and that understanding the Maastricht text is becoming stronger, it can not be denied that there has been, and there still is, considerable resistance to accept the founding articles of the MU.

 

Maastricht continues to be incomprehensible to those who even now (summer of 1997) are still asking for a referendum to decide if it should be applied or not. Surely they make this request because they have not realized that the Intergovernmental Conference (IGC'96) of the European Union (EU) has already produced Maastricht II, i.e. the Treaty of Amsterdam, which is actually the fourth edition of the original Treaty of Rome, followed as it was by the second through the incorporation of different subjects of the Single European Act, of 1987, and the third, the very Treaty of Maastricht that went into effect in 1993.

 

There are people, even some very keen specialists, that see Maastricht as a confusion of confusions, and for that reason they speak of judicial rubbish, since the convention does not present a harmonized nomenclature of the almost 300 articles it contains. In spite of this, the line of argument is well developed, with solid substrata. The irritating fact that there are articles with letters (4A, 4B, 130-A, 130-B, etc.), is not of great significance, since the texture of the document is completely logical.

 

From a deeper point of view, my opinion is that the Treaty is not well understood, or is willfully misunderstood, because of cultural and anthropological circumstances that we would dare to sum up as fundamentally Calvinis~ and Darwinist.

 

Why Calvinist? Because what Max Weber said in his essay on the "Protestant Ethic and the spirit of Capitalism" is being encountered in Maastricht : the countries that brought about the Reform present an attitude of austerity and work in their economic life. Meanwhile, people in the traditionally Catholic nations see things differently. As a matter of fact, Calvin, the great political leader and religious director of the Reform in 16th century Geneva, said that in the quest for the soul's salvation, one can not be sure of having been predestined by God. Hence, in order to attempt to be saved, one must seek holiness through the most propitious means, which in modern economic jargon we would express as: austerity, to spend what is necessary, but not more ; personal effort in order to be proud of work well done; and the observance of legal norms which must be few, fair and clear.

 

First of all, austerity in the Treaty of Maastricht focuses the public interest on the scrutiny of public deficit and debt stock, so that both dimensions are sustainable in the citizens' economy. In other words, ruling powers should not waste people's money, in order not to burden following generations with the consequences of today's gay years of extravagance, a reasoning along the lines of Ibsen's A Doll's House.

 

On the other hand, the Stability and Growth Pact (S&GP), which ex post complements the chart of the Maastricht criteria, as we will see hereunder, is an announcement that the Calvinist path of austerity is going to be followed in the coming future. In other words, it is not a prospect of simply straining for the extreme effort of entering the MU and then relaxing, there will be continuity, to guarantee sustainable convergence, which means, in the long term, permanent monetary discipline.

 

Besides the austerity, there is the pride of work well done, which must begin at the very Public Service and be noted by the common citizens, by eliminating subsidies and other forms of welfare interventionism to businesses, so that efficacy and efficiency are proclaimed as standard values.

 

Finally, in the calvinist way of behaviour, there are the legal norms to meet: few, fair and clear; even quantifying their demands so as not to get lost in vagueness. In this sense, it has been frequently stated that the criteria of the Treaty for the MU are cabalistic; and in a certain way, this is true, because they are expressed in concrete numerical ratios and levels. In what other way could the economic health of States entering the MU be measured? In any case, far from being disdainful, the Maastricht criteria -low inflation, controlled public deficit, reduced interest types, limited debt stock and monetary stability- as we shall examine them, are reasonable, and not necessarily going to lead to an induced recession, as it has sometimes been stated.

 

Now comes the second main question about what we proposed at the beginning : Why is the Treaty Darwinist ? Simply because it tends to encourage personal effort, the struggle for survival, to do things (efficacy) and to do them well (efficiency). It is Malthus' old idea, which afterwards, both Charles Darwin and Russell Wallace assumed in their explanation of the Evolutionist Theory : the survival of the fittest serves to select the best. In the long term, that allows the progress of the most gifted stock, thence generating the quantitative steps that make the great qualitative step from one species to another viable.

 

This Darwinist context can be seen in today's EU in such significant feats as liberalization and deregulation, in order to construct the Single European Market, the new stage for full competency of the fifteen member countries. And the same could be said on the world scale - this is the global outlook-, since we live in a borderless economy, open to the very strong winds of concurrence. In this sense, it should be recalled that the common foreign tariff of the EU (TARIC) in the year 2000 will have an average level of protection of only 2 percent ad valorem (contrasting with the 20 percent of the 1970s). Therefore, the struggle for survival is enhanced in the Treaty as a foremost attitude. QED.

 

2. Homogenization of prices

 

The path of the Treaty of the European Union, facing the MU as the culmination of the process is very clear. In a certain way, that was predicted by Walter Hallstein, the first President of the European Union, when, at a moment of serious international tension between East and West (1958)-everyone was talking about rockets and nuclear warheads, kilotons and megatons, and mutually assured destruction- he used a war metaphor with a peaceful purpose: the Community would be a three-phase missile: the Customs Union, already implemented in the Treaty of Rome in 1957; the Economic Union, which would be achieved with the Single European Act of 1987 in the form of the Single European Market with the suppression of the last fiscal, technical and geographical barriers; and finally, the Political Union, programmed for a long time but not yet perfected, and which must achieve two basic elements, the single currency advocated in Maastricht in 1993, and joint defense, about which many uncertainties still exist.

 

This is what Hallstein said forty years ago, and what has been occurring since then is an obvious evolution of advancement towards that preconceived objective. In spite of which, some are surprised, or at least appear to be, about the targets of the EU; employing arguments against the MU, like those proffered until quite recently by the Nobel Prize winners in Economics from the US. This means that they did not realize that, in Europe, we are facing a great proposal of shared destiny, as the Spanish philosopher Jose Ortega y Gasset would have said if he had lived long enough to appreciate the grand dimensions of the political project.

 

Nonetheless, times change, and the positions of yesteryear are rectified these days. Thus, the American Nobel Prize laureates, from Chicago and the East Coast, after erring in their initial rationale -the MU is not in your interests, and anyway, you won't be able to do it-, now they make, no more rejections, but emphatic recommendations. They are no longer opposed to the idea that in the year 2002, Europe will attain what the American Union obtained at the end of the 18th and the beginning of the 19th centuries, with the suppression of the differences among the various dollars that were circulating around the former Thirteen Colonies.

 

The common share of sovereignty by the European nations to manage the Euro will experience its maximum reach in 1998 with the introduction of the institutional mechanisms that will substitute the present European Monetary Institute (EMI), founded 1994 as a first advance. The European Central Banks System (ECBS) and the Central European Bank (CEB) will be operative starting in the month of May, 1998 after the entrance exam to which we will hereafter refer. And on the first of January of 1999, the birth of the Euro will be reality, with the irrevocable conversion of all former national currencies to the common one. This be will much more than a new exchange rate: it will constitute a sort of transubstantiation, the beginning of the definitive disappearance of traditional currencies between the first of January and the 30th of June of the year 2002, when the physical exchange of old bills and coins for new Euros takes place.

 

3. The Maastricht Criteria

 

We must refer to the famous Maastricht criteria. The best way to explain and interpret them will be through a connection of the five pieces of the puzzle.

 

The true anchor, the mother of all criteria, is the public deficit, which must not go over 3 percent of the GDP. If it is not controlled, there will be inflation, high interest rates, an accumulation of public debt, and monetary instability.

 

The second key is inflation (no more than 1.5 points over the average of the three EU countries with the lowest price increase), which, with the deficit, determines the true level of long term interest rates (public issue to 10 years), which have a ceiling of 2 points over the average of the three countries with the lowest inflation.

 

Public debt stock (at most, 60 percent of the GDP) might be discarded as a fundamental criterion, for well-known reasons the indebtedness of the public sector in Belgium is more than 130 percent of the GDP, therefore making it impossible for that country to meet this level of reference in 1998. This leads us to expect a wide margin of flexibility in the quoted indicator, since it would be most unpleasant for all European citizens and institutions that the State which hosts the capital of the EU, Brussels, not be a member of the MU from the very beginning.

 

Finally, monetary stability, after the decision by the European Monetary System (EMS) in August of 1993 to establish a margin of its Exchange Rate Mechamism of fluctuation of 15 percent between the weakest and strongest currency, has caused this indicator to lose importance, since all the members of the system easily meet such a wide range.

 

Regarding the criteria reviewed up to here, the nominal ones, it would be appropriate to recall that there were efforts to promote a series of real criteria in the preparation of Maastricht. Major, the British prime minister, suggested one of them, that would be summed up by the initials ULC, for Unitary Labor Costs ; that is, a salary/productivity ratio with which to ensure more effectively that the countries of the Union be competitive on an international scale. This, it was said, would tend to guarantee that it would not be necessary to grant subsidies in order to sustain intrinsically noncompetitive economies.

 

The second real criterion suggested, was the social one, which Jacques Delors tentatively proposed. It could have meant setting for the member states a maximum of 7 percent of unemployment, which would have been the same as establishing a sort of NAIRU (nonaccelerating inflation rate of unemployment), on the European level, for the purpose of mobilizing workforce as much as possible.

 

The third real criterion was proposed by Spain, upon suggesting a certain rate of growth : given the great heterogeneity among levels of income, it would have been interesting to consider different types of expansion, according to the scale of per capita income, in order to stimulate faster growth in the countries with the lowest incomes levels.

 

Though these three additional real criteria were not accepted in Maastricht -for reasons of difficult measurement and because they belonged to each country's own area of subsidiarity of the economic policy-, they compose the picture of real convergence, in contrast to nominal convergence. Together, the sum of criteria of the two kinds, allows the quality of the process to be appreciated, to be duly qualified, knowing that besides committing to monetary orthodoxy, there is enough growth to create jobs and diminish unemployment. For this reason, if the real criteria did not exist, they would have to be invented as important indicators; at least for a global monitoring of the real social and economic landscape.

 

In order to defend the nominal criteria –vis a’ vis the many attacks received-, let us now reflect, for just a minute, on the reasoning that even if we were not on the way to the MU, we would have to invent and apply them. Summing up, what is being defined with these criteria are the very economic needs for convergence in the direction of an optimum currency area (OCA), this being indispensable to face the tough competition in the framework of world economy.

 

Besides that, the criteria are social, because the struggle against inflation allows the monetary salaries, pensions and savings to maintain their purchasing power, because low interest rates make investments and the creation of jobs easier, and because the control of public deficit and debt means a better public administration.

 

Definitively, these criteria are the true gate to the MU, and the countries that meet them will be in the first list of member States of the Euro Zone.

 

On this path to perfection towards the common currency, there has been indubitable efforts made, though there are criticisms on behalf of the orthodox purists upon evaluating the methods followed in that process. Some say that the Treaty of Maastricht is full of ambiguous interpretations, and its effective application is a long succession of traps. Privatization, for example, allows to be shown as sound assets what are truly not more than extraordinary profits in banking terms, which do not correspond to the image faithful to reality to know if a given State is economically in good health.

 

In contrast to these wishful attitudes, creative accounting presents a long series of doubtful handlings, even though Eurostat (the Office of Statistics of the EU) applies the severe accounting criteria contained in the SEC (European System of Normalized National Accounts).

 

According to this way of seeing things, even the civil servants’ pay freeze is related to creative accounting, by being a dam system of containment, which goes against what would be the most proper policy: the reduction of the structural deficit caused by rampant bureaucracy, a pensions system in an ever-shortening period of activity, and the excessive social grants to the unemployed which do not encourage their return to work.

 

4. The stability and Growth Pact

 

After the criteria analysis, we must look at the aforementioned Stability and Growth Pact (S&GP), whose final details were adopted at the summit of Amsterdam of the 16th and 17th of June of 1997, with regulations that are supposed to be more severe than those previously fixed at Maastricht.

 

According to the S&GP, a deficit greater than 3 percent will only be permitted when there is a serious recession at hand, measurable by negative growth greater than 2 points of the GDP. If the recession is between -0.75 and -2 points, there could be palliative aid adopted at the Community level by authorizing a deficit greater than 3 percent, but only if circumstances permit. And faced with normal growth, more than -0.75 points upward, no type of vindication for special tolerance can be made.

 

The S&GP includes the corresponding sanctions, which could be up to 0.5 percent of the GDP. That is why it has been said that the S&GP is more severe than the convergence criteria of Maastricht itself, but this is not true. The problem is that according to the criteria, in case of failure to meet them, the sanction is not to enter the MU. But once inside, the sanction cannot be expulsion, because it is an irreversible project. The imposition of fines according to the system already described, looks like the only compulsory method. Thus, the S&GP tends to ensure the indefinite sustainability of convergence.

 

5. The list of member States of the MU

 

Who will be at the head of the race when the Euro is born? Above all, there is the so-called hard core, made up of the countries that without any doubt will enter the first round. It is formed by Germany and France -the basic tandem-, the three of the Benelux, and Austria, which has already linked its Schilling to the DM through special agreements with the Bundesbank.

 

Even so, it is well known that Germany and France have problems (summer of 1997) to get their deficit below 3 percent of the GDP. Not entering now in the efforts both Nations are adopting to attain the Maastricht target, that situation gives us the idea that flexibility could work to accept certain accomplishments; but only at the moment of the entrance exam because, if it appeared beforehand, discipline would be lost, and the entire process of convergence could be hampered.

 

The only country that at this moment -August 31st, 1997- does not want to enter the MU is Sweden, which is going through a period of harsh adjustment from its time-honored model, given the name suecialismol. The Swedish are now in transit from the Welfare State of Olof Palme and Ingvar Carlson to an open and liberalized model. For that very reason, in 1995, when they got into the EU, the Swedish authorities, decided not to enter the EMS. Along the same line of caution, in 1997 they stated that they did not want to participate immediately in the MU. Therefore, they assume they do not need to be worried about meeting the S&PG, because without being in either the Monetary Union or the EMS ii (or the New Mechanism of Exchange Rates, NMER, as it is now officially called), they can not be obliged to not meet the requirements. It must be recognized then that Sweden has a very clear position, though its National Bank (which among other things finances the Nobel Prizes in Economics) is in favor of entering the MU in the first round.

 

There are two other countries full of Hamlet - like doubts, the United Kingdom and Denmark, both of which benefit from the opting-out clause, which gives them the option to remain outside the MU, though in any moment they may opt for the Euro. If one asks what the final decision is going to be in both cases, the response would be positive, because Britain and the Danes are very closely following the development and the criteria, their economies being absolutely integrated in the Community. Still, they may not participate in 1998, but in 2001 or 2002.

 

In the specific case of the British, their economy is going through a period of extraordinary prosperity, with the Sterling climbing and unemployment at a long-time low. Besides, everyone knows that London's City is the best English business; one square mile -which The Economist discovered recalls the shoreline of Australia-, where some 300,000 people trade in stocks, commodities, insurance, options, futures, etc.; and where 15 percent of the GDP of the United Kingdom is generated.

 

The almost unanimous recommendation from within the City is to enter MU as early as possible, and the same thing happens with powerful trade unions. But the popular ambiance in Britain produces a true dilemma, which John Major expressed vividly with his to be or not to be in terms of postponing the decisions until after May of 1997 when he lost the general elections. On the contrary, Tony Blair seems to be taking a more European path, and everything indicates that the United Kingdom is preparing to enter the MU, even though the most Europtimistic politicians in the Government clearly realize that they have to convince the broad layers of the still prevalent underlying Imperialism ; not so much the aristocracy, the business world or the labor sector, but the mid- and lower levels of electors, with a high level of chauvinism, as was evinced during the war of the Falkland Islands (Malvinas in Spanish). Besides, there is another problem; Britain has probably to wait to enter until sterling be much less over evaluated.

 

We could also say that two peripheral countries will enter the MU without problems: Finland and Ireland, because they have made extraordinary effort recently, and which are in perfect conditions to meet the Maastricht requisites. In the Finnish case, the change has been most spectacular ; from its former relationship with the Soviet Union, it has gone to a close connection to the EU. And in Eire, a model of liberalization and low fiscal pressure has been applied which has attracted a great volume of foreign investment with the final consequence of fast growth and a climbing Irish Pound.

 

The Southern Front, which for a while the British called insultingly PIGS (the initials of Portugal, Italy, Greece and Spain) was until 1996 a kind of area disdained, the traditional Orthodox Calvinists and many racist references were made about whether they were were very respectable members for such a distinguished club as the MU, in spite of the fact that Spain and Portugal took on a very visible process of improvement. Long afar are the comments of 1996, when it was stated that Italy could not enter, and it was assured that Spain should not become a member, so as not to upset Italy, and they said Portugal had to stay out in order not to disturb Spain!

 

In 1996 it was also pointed out that the four Southern countries have 28 votes in the Council, and that the minimum for veto is 26. For that reason, without any need to form some sort of stragglers' union, or a platoon of the awkward, the case could have come about that if a total of 110 million Southern Europeans could not enter, there could be a veto, in which case there would not be a MU for anyone, the powerful Germany included.

 

It will not, however, be necessary to resort to any of that. Club Med, -as the four Southern countries are also called-, has greatly improved, can exhibit the best marks in the pre-exams, and will enter the MU on its own merits; excepting Greece, which accepts with good grace that it is still not prepared, though it has made a great deal of progress recently, perhaps in order to subscribe to the Euro in 2002.

 

6. The entrance exam: four days in May

 

How the actual entrance is going to take place. To explain this, we are going to recur to a sort of film, which I call Four Days in May -in allusion to John Reed's book Ten Days that Shook the World, or cinema director Juan Antonio Bardem's film Seven Days in January-, and can be summed up by the following:

 

*Friday, May 1st, a holiday in all of Europe because of Labor Day. With the financial markets closed, the Council, made up of Heads of State and Government, will meet with previously studied reports from EMI, Commission, Parliament, and ECOFIN. Based on these analyses and political deliberations, the list of Member States of the Monetary Union will be decided: (the first speed).

 

*Saturday, May 2nd, also a non-working day for the financial markets, the components of the Executive Committee of the SECB and the CEB will be chosen, so that both institutions start performing immediately, taking over from the EMI.

 

*Sunday, May 3rd, the pre-announcement of the irrevocable conversion rates from national currencies to the Euro will be made, which will formally enter into effect on the first of January of 1999. But from the very 4th of May on, the CEB will try to make sure these exchanges are respected, as guide-prices, resorting if necessary to the intervention of exchange markets, on the basis of a fund of 50 billion Ecus (Euros since January 1'~ 1999) that will be available for such a purpose. This way, the eight months from the 4th of May to the beginning of 1999, will not be, hopefully, a period of monetary turmoil. During this time, exchange will be maintained around the pre-announced rates, and finally on the 1st of January of 1999, the various national currencies will become mere fractions of the Euro (e.g.: with a irreversible conversion of 166 Pts for one Euro, the Peseta will be 0,0606 Euros), until their definitive disappearance in the second semester of 2002, when all old bills and coins will be exchanged for the new Euros.

 

*Monday, May 4th, the markets will open again, and the Euro will virtually have begun to exist.

 

7. The advantages of the MU

 

We must clear up the question as to whether the Monetary Union is or isn't good for Europe. Because the concept of the MU cannot be adopted as a dogma, nor as merely a political decision, we simply have to make reference to the economic advantages that the MU may have.

 

7.1 Currency stability

 

This is the first factor. As Monsieur De Silguy, European Commissioner of Monetary Affairs, recalls, the turbulences of the years 1992 - 1994 (with four devaluation of the peseta, Italy's and the United Kingdom's leaving of the Exchange Rate Mechanism of the EMS, and many other problems) cost Europe two points of global growth, and one and one half million more unemployed. The mere fact of ending the turbulence is an important factor towards stability, and therefore to ensure a reasonably sustained growth.

 

7.2 Common inflation 1evel~

 

The countries that suffered from high inflation rates in the past, realized that such erosion carried off many of the accumulated real resources. The conservation of the value of money is a basic criterion that the Bundesbank defends in Europe. And even though the CEB is not going to be a BuBa clone, the German philosophy is undoubtedly weighing in on the project. Some even go so far as to say, in their speculations, that the 4th Reich is actually being constructed, and that when Poland, Czechoslovakia and Hungary enter, and with the neutralization of the Baltic States, Belarus and the Ukraine, the Germans will peacefully be able to reach the limits of what Hitler was only able to conquer ephemerally, between 1941 and 1943. But these opinions are whimsical fantasies : today's Germans are more influenced by Thomas Mann's idea of a European Germany, instead of a German Europe. This is a sincere aspiration and so must it be pointed out.

 

7.3 Similar interest rates

 

The base price of money, or intervention rate of present Central Banks, for the injection of liquid assets in the banking System, is going to be determined by the CEB starting 1999. Besides, there will be a European interbanking offered rate (the Euroibor) which will create great similarity among national interest rates. The risk premium against the devaluation of weak currencies, as took place with the peseta between 1992 and 1995, is no longer going to be paid, which will be to the benefit of investing and creating jobs and helping small sized enterprises to enter international trade.

 

7.4 Suppression of exchange barriers

 

Another important issue is that of the suppression of exchange barriers, which generally is ignored. The Single European Market is spoken of quite freely, in spite of the fact that it does not yet really exist, because of important invisible obstructions: transaction cost in sin the form of exchange commissions, are very high barriers to commerce. What is its suppression going to mean ? Besides significant savings for companies in the intra-Union trade, an extraordinary growth in reciprocal commerce, reaching levels comparable to the USA among its fifty states.

 

7.5 Differential fact and comparative advantage vis `a vis third countries

 

We should also mention the differential fact that the Euro is going to represent. If, as we saw earlier, we have a common foreign tariff with a level of 2 percent ad valorem, which provides little protection at borders, the commissions from currency exchange, which third party countries are going to continue to pay to enter the Euro zone, will mean an important comparative advantage for the Member States of the Community, because the defense through tariffs is going to be doubled, and nobody, neither the World Trade Organization nor any other international forum, will be able to criticize its deeply healthy impact.

 

7.6 Viability, adjustments and reforms

 

An additional advantage to the MU is that it is going to force -it already has, or is doing so now- structural adjustments and reforms of the economy, which would not otherwise be easily brought about. In this sense, as an example, it could be said that, historically speaking, Spain likes aperture. There have always been prophets of doom when we were about to enter a project of cooperation or integration. They criticized those advances as being excessively dangerous : the Stabilization Plan of 1959 (entering OECD, FMI, World Bank, and GATT), the Preferential Agreement with the EEC of 1970, the Moncloa Agreements of 1977 during the transition to Democracy after Franco, the adhesion to the EEC in 1986, and finally the Monetary Union of 1999.

 

7.7 Reduction of public spending

 

At the bottom of the matter, experience demonstrates that every aperture makes the economy more dynamic, bringing with it reforms spoken of for years, and which finally had to be adopted. Only under pressure of the Monetary Union will they be produced as soon as possible, as it has generally occurred with labor flexibility. Public expenditure will also have to be cut. It is certainly important to decrease the deficit, but more beneficial in the mid-term will be to reduce public expenditure from the 47 percent of today (EU average) to 35 or 40 percent. In the USA it is less than 35 percent, with only 4.9 percent unemployment ; and in Japan, with less than 30 percent of public spending, unemployment does not reach 3 percent of working population. Therefore, it must be considered that one day public spending will have to be thoroughly reformed in order to spend less and do it better.

 

7.8 The Euro, reserve currency

 

The Euro is going to be more than a European business. It will be a world currency, with great incidence in the reserves of all kinds of central banks. By the way, what is the use of reserve banks today ?. The answer is quite simple: importers are guaranteed that they will have enough means of payment; and the national currency will be defended through interventions of the Central Bank in the exchange markets. Many things are going to change therefore with the Euro: for buying abroad, Europeans will use their common currency massively, and to regulate the rate of exchange of the Euro with the yen, the Swiss Franc and the dollar, it will have just a fund of 50,000 million Euros, hardly a sixth of the total reserves of the Fifteen that the CEB will manage, will be enough.

 

7.9 The Euro, currency shelter

 

The Euro will be a shelter currency for those abroad that do not trust their own currencies. This will favor investment possibilities and the creation of employment in the Euro zone.

 

7.10 The Euro, currency for fixing international prices

 

Finally, let us indicate that commodities, starting with oil, at present always priced in dollars, will be quoted in Euros. Therefore, Europeans will no longer depend on the greenback in situations that spread inflation through imports, as is happening in the summer of 1997 with oil and gas.

 

7.11 Acceleration of the process of integration

 

The entering into effect of the Euro is also going to mean a great e'lan in efforts for institutional and legislative development of the EU. If the proper advances are made and the United Kingdom decides to join the MU, many of the problems that today appear impossible to be solved, and that were not resolved in the Treaty of Amsterdam, may find solutions in the new Intergovernmental Conference at the beginning of the 21st century, with the MU already running smoothly.

 

7.12 Fallacies about the sovereignty of foreign exchange

 

The possible inconveniences of the Euro must be analyzed also, such as the so-called loss of sovereignty of foreign exchange. However, to make it short, let us recall what the phase 1992/ 1995 was, with strong currency turbulence and competitive devaluations. And in the end, what remained of the pretended almighty sovereignty of foreign exchange? All that remained was failure, because of the inability to achieve greater productivity, quality and competitivity. The only solution, a most primitive one, was to devaluate the currency once in a while.

 

7.13 Sophisms regarding budgetary autonomy

 

It is also sometimes said -less and less, it is true-, that with the MU, budgetary autonomy, which used to compensate for the weakness of the economy during previous periods of crisis, is going to be lost. But as we have seen, increased public expenditure does not necessarily mean more jobs.

 

7.14 The EMU, a mental, political and economic revolution

 

The Monetary Union is a mental, political and economic revolution, which sets new horizons. That is the reality. And it is also a revolution on the world scale. Remember that in Bretton Woods, 1944, John Maynard Keynes, who was a visionary, proposed a world currency, the bancor, and a world central bank, the IMF. And it was the representative of the US, Mr. White, who asked him what it was all for, since the dollar and the US Federal Reserve System already existed. Thus the international hegemony of the dollar was strengthened.

 

8. Prophecy and Declaration of Independence

 

And now a prophesy. Simply, the Euro is going to serve as a base so that in the not-so-distant future there will again be a new International Monetary System. Michel Camdesus and the author of these lines commented on this when the General Director of the Fund was in Spain for the Assembly of the Monetary Fund in 1994, in line with the perspective of The Economist, which in 1987 predicted that in the year 2017 there could be a world currency; the phoenix, based on initial agreements between the dollar, the yen and the Ecu, or tomorrow's Euro.

 

Finally, The Monetary Union is a Declaration of Independence, similar to the one which the Thirteen Colonies made with the unification of the dollar, between the 18th and 19th centuries, from the basis original Spanish dollar, a Real de a ocho, which was circulating in the U.S.A. until 1853.

 

Summing up, we can foresee a more powerful Europe, economically and financially. And our solidarity towards the countries of the South, which is already significantly greater than that of the USA, can continue to grow, in order to introduce new and different methods which would break the bonds of native capacity that welfare interventionism hasn't managed to awake in the still wide-ranging Third World.

 

R. Tamames

Macau, September 1997