On Board the Euro
Much of western europe, now that it has the euro, faces a problem common to all federations: How do the economic benefits of unity get spread around enough to keep all 11 member-nations content?
Canada, for example, provides equalization payments to poorer provinces like Newfoundland. Some tax revenues from rich provinces, including Ontario and Alberta, are shifted to poor provinces to assure adequate schools, highways, and other services.
In the United States, the distribution of prosperity is more haphazard. But it is accomplished to a degree through defense contracts, farm payments, and other federal programs. If a state is down economically for a long time, Americans tend to move to more prosperous areas.
Europe is different. It has a multitude of languages and cultures. English is rapidly becoming a lingua franca in the European Union, especially among young people. Nonetheless, Europeans don't change addresses as easily as Americans.
In creating a common currency, the 11 nations of Euroland gave up their right to set monetary policy. They can no longer print money, or influence interest rates, to stimulate their nation's economy should it fall on hard times.
Monetary policy has been turned over to the new European Central Bank (ECB). That policy will be set by the votes of the governors of existing central banks (in effect now divisions of the ECB) in the 11 nations and a six-member board at the Frankfurt headquarters of the new central bank. A majority vote will rule.
Creation of the euro is by treaty "irrevocable." But, as any student of economic history knows, the "permanent" can turn out to be less than that.
Europe will have to maintain and expand whatever system it has to distribute the benefits of a unified continent. Otherwise, if a nation suffers in the more competitive European economy, its people will elect an anti-euro government. And Brussels has no troops to insist on Europe's unity.
An attempt to set up fixed European monetary systems collapsed several years back. It could happen again. This time, we expect Europe to resist a breakup mightily. The creation of a single currency for 291 million Europeans aims at unity, peace, and prosperity. Indeed, we hope that the four members of the European Union not initial members of the monetary union - Denmark, Greece, Sweden, and Britain - will join. At some point, the European Union should expand to include other European nations to the east.
Many in Britain worry about losing sovereignty. With globalization of the world economy taking place rapidly, British economic sovereignty will diminish regardless. It would be better for Britain to join and have a voice in Europe's common monetary policy.
Sir Edward Heath, the former British prime minister who took Britain into the European Economic Community in 1972, remarked in a recent interview, "Imagine what the United States would be now if each of the 50 states had its own currency."
Perhaps Europeans, including the British, will make the same point about Europe in not too many years.