Europe’s uniform currency is now certain to be a reality on January 1. The euro passed a crucial credibility test in the markets this week after some political stumbling by the member states of the European Union.
The stumble was over the appointment of someone to head the European Central Bank. The founding treaty of the European Union demands consensus. The agreed arrangements for the single currency demanded an independent central bank headed by someone who was distant from political and national pressure. The best way to ensure that, the European nations agreed, was for the bank head to have a long term — eight years.
All nations except France thought the best appointment would be Wim Duisenberg of the Netherlands. France wanted one of its own, Jean-Claude Trichet.
Both are experienced chief bankers and good candidates, but Mr Duisenberg had by far the greater support. But the French were adamant and stood in the way of consensus. It sought and obtained a concession. Midway through the eight-year term, Mr Duisenberg would stand aside for Mr Trichet.
It is not a desirable outcome. For a start, Mr Trichet, who had only French support for his candidacy and who will get into the job only through French spoiling tactics, might be seen to be beholden to French interests over broader European interests — precisely the opposite of the aim of the consensus requirement. Further by shortening the term to two four-year terms, the distancing and independence of the job will be compromised. An eight year term can cap a career and put the holder in a position not to worry about later career moves.
The fight overshadowed the confirmation at the weekend in Brussels that Germany, France, Italy, Spain, the Netherlands, Belgium, Austria, Portugal, Finland, Ireland and Luxembourg will switch to the euro on January 1.
The European Central Bank, based in Frankfurt will be one of the world’s most powerful financial institutions. Its task will be to ensure the stability of the single currency, to fight inflation and set interest rates for the 11-nation euro bloc.
The bloc will be the world’s second-largest economy, just behind the United States. It was unfortunate that Britain did not join, too, not because that would have made it the world’s largest economy, but for the symbolism. The joint currency it not only an economic matter. It is an important political symbol for peace and unity of social purpose. Europe has for too long been the scene of wars between and within nations, and even this decade has been no exception.
The single currency will improve as sense of European identity that will transcend petty national jealousies that too often have led to violence in Europe. It will inevitably make travel and transactions between Europeans easier so there will be more of them, increasing understanding between individuals and organisations.
The unseemly squabble over the bank’s presidency, however, did not undermine confidence in the euro on the money markets. European currencies did not tumble against the dollar. Both contestants had very good reputations in the financial markets and most people in the markets were resigned to some kind of job splitting.
Further, on paper the formalities are intact. The EU Commission pointed out that today denied accusations that the EU’s founding treaty had been breached. Mr Duisenberg has been formally appointed for eight years. It is merely an understanding that he will step down after four years.
How very European. It is also very European for understandings to turn into misunderstandings. One can hope that that does not happen with something so important for the world as the single European currency.