For 300 million Europeans, the euro has finally become a reality. In the euphoria of their New Year celebrations, there seemed little in the way of reservations about the momentous step that the new currency represents for the 12 countries that have embraced it and, indeed, for the three EU members that have not.
In terms of utility, there can be no doubt that the arrival of the single currency represents a major commercial advantage. Businesses in any part of the eurozone can trade with each other without any currency risk. As importantly, trade with the countries on the edge of Europe is likely to become dominated in euros, rather than dollars or marks. The euro will become the accepted second world currency and thus a source of reserve wealth worldwide, rivaling the US dollar as the international medium of exchange. That at least is the theory. The difference, however, is that the United States is a single, integrated economy which is also a single integrated political state. Europe is neither of these things. Thus, users of the euro are being asked to believe that it represents an accurate measure of the wealth of 12 different countries, which have different political agendas and often unaligned economic cycles.
There are those who argue that this does not matter. They point to the way in which individual US states have also enjoyed financial fortunes at variance with those of the rest of the country. Within certain limits, state taxes and budgets are set independently of Washington. Nevertheless, they argue that the greenback reflects the overall health and wealth of the entire American economy and never varies in value from one state to another. The weight of this case rests upon the fact that the United States started out as a homogenous political state. However, it is not often realized that unlike the monolithic new European Central Bank, the US Federal Reserve is divided into 12 privately controlled, separate, central banks. The current system was established in 1913, and in 1825, President Jackson actually sought to abolish federal monetary control. The US analogy is, therefore, inaccurate.
Those who have always desired a "United States of Europe" have calculated that sharing a single currency actually provides the best way of cementing that ambition. They are convinced that once they finally reveal their magnificent new European structure, with a single government to go with the single currency, every European citizen in every country will be glad, or at least prepared, to move in. This is dangerous thinking. A new building, however splendid, however well-designed, is only as good as its foundations. In 1860, the foundations of the United States gave way, under the weight of the issue of states’ rights. Five years of bloody civil war ensued.
It should, therefore, be understood that those who welcome the arrival of the single currency as the ground floor of a united Europe are possibly also laying down the fault lines and weaknesses that, maybe years from now, could test the whole structure, perhaps to its destruction. However, the euro fares technically as a new world currency, the political risks that its arrival represent for the European dream should never be ignored.
