Ten years ago, the new European currency, the euro came into existence but only as an electronic currency.
It was not to be for another three years that 300 million Europeans in the first 12 countries to sign up for this brave single currency exercise, would actually be able to jingle the new coins and fold the new euro notes into their pocket books. The launch of the new currency was attended by furious arguments as governments massaged their debt ratios to qualify for the strict rules laid down in the euro rules.
In the end it was the political expedient of wider European integration by having a common currency across a dozen states that took precedence over the economic arguments. The euro was initially regarded with suspicion by international markets, which marked it down against the still mighty dollar.
There were many who wondered how a single central bank could set rates for a range of countries with very different economies and very different ways of running them. The Italians and Greeks, for instance, whose economies for so long teetered on the brink of disaster seemed hard to measure against the remorseless efficiency of the German industrial machine.
Indeed, many Germans resented the loss of their solid deutschmark and suspected that from thenceforth, they would be carrying the weaker euro economies.
But 10 years on, the euro is still working, now with 16 member states — Slovakia being the latest to join this week. Indeed as investors around the world look desperately for value, the single European currency is appreciating against the dollar and has gained almost 40 percent against sterling in recent months, much to the disgust of hundreds of thousands of UK expatriates in France and Spain, many of whom may be forced to sell up and go home.
There is now even talk that within the next 20 years the euro could replace the dollar as the world’s reserve currency. This could be because investors refuse to continue to finance America’s massive budget deficits by purchasing ever more quantities of US government paper — checks that will never be cashed, as one commentator described recently.
If the US dollar were eclipsed in the same way that it eclipsed the UK’s sterling after 1945, the change need not be swift but the effect could be dramatic. Here in the Kingdom a prime concern would be the currency in which the price of oil would be denominated. How does it sound that a $40 barrel of oil is in fact €28.62 or is it more likely that it would be denominated in China’s currency as yuan renminbi 273.1? Such a change might seem unthinkable but these have proved unthinkable times. The dollar became mighty and international because the US economy had done the same. The euro may be the currency of the world’s richest economic bloc but is it likely that Europe’s economic might will actually now challenge China or India? Even the most ardent euro enthusiasts might balk at such a claim.
