The introduction of the euro is highly significant, not for just the developed capitalist economies, but the whole world.
The unique aspect of the euro is that for the first time in history, a currency
union has preceded a political union. This means that the marxist view that economic structure of society determines its political structure is now plain for all to see and not just perceivable only to the intellectually and politically astute. Is this the beginning of the end of political nationalism?
Before going further, some facts on the euro would be useful. It began 4 decades ago when European leaders signed the Treaty of Rome in 1957,
which gave birth the EMU (Economic and Monetary Union). The historical root went back to Napoleon's Continental System of 1805, after the the British defeated the French at Trafalgar. The Maastricht Treaty in 1992 set up the euro and 5 conditions for countries to
join. The 5 conditions are: 1) Inflation during the year before joining cannot exceed by more than 1.5 percentage points than the 3 best performing members. 2) Less than 3% GDP budget deficit 3) Sovereign debt less than 60% of GDP or trending down 4) Long term interest rate within 2 percentage points of best performing member. 5) Stay within EMU foreign exchange rates fluctuation limits.
Euroland now consists of 11 European countries led by Germany and France, including Finland, with 6 aspirants member countries. They are: Poland, Czech Republic, Hungary, Greece, Estonia Solvenia
The value of the euro is set at 1.17 to US$1.00 at its introduction, but is expected to free float by market forces. Non cash transactions began on January 1, 1999, and cash will begin circulating
on January 1, 2002.
Aside from economic benefits, the EMU is expected to lead toward European political union. This will virtual remove any prospect of war within Europe and make the European Union a world power. EMU monetary policy will be conducted by the new European Central Bank located at Frankfurt, headed by Dutch Central Banker Wim Duisenberg with backing from the Bundesbank of Germany, a bastion of conservative monetarism (anti inflation). Its influence on the global economy will rival the Federal Reserve.
The economic logic of a single European currency is: Eliminate exchange rate costs and inefficiencies within a single European market similar in size to that of the US. A supranational central bank to set a unified monetary policy for economic stability. Under finance capitalism, size matters.
With the introduction of the euro, the global economic system moves into a bi-polar system with two dominant currencies. This will challenge the supremacy of the dollar as the world's sole reserve currency, a position it has
occupied since the end of WWII. This advantage has permitted the US to dominate the global economy, extend its finance capitalism globally, while pursuing irresponsible monetary and fiscal policies at home, incurring recurring budget deficits and massive national debts.
Key basic commodities markets such as oil that have been denominated in dollar will now be restructured as bi-currency regimes, increasing the bargaining power of consumers, albeit only slightly. The short term fall of the dollar's value is almost certain. What is not known is by how much and for how long. The Federal Reserve's ability is set US interest rates will be constrained as the world now has an alternative reserve currency. If the world's central banks choose to park a large portion of their foreign currency reserves in euro, a run on the dollar may occur, driving up interest rates and causing a crash of the stock market, with resultant high unemployment
and business failures. American multinational corporations will be less transnational in character in Europe and their loyalty to the US will be weakened.
Geopolitically, Russia will be nervous that former Soviet republics and satellites joining Euroland to form a kind of economic NATO that would lead to a political union in the form of a new Euro empire. 1998 saw the massive failure of economic reformer that resulted in the reformers being forced from power. The West, which had invested in Russia, would never recover its investments or collect on their loans. As a result, investment and credit have ceased flowing
into Russia, and Western political influence have plummeted. As happened before in Russian history, the pendulum is moving from pro- West to
suspicion and contempt. As before, the Westernizers who dominated Russian politics for the past decade are being replaced by Slavophiles, who will seek to root out Western influence. Russia will seek to use the euro against the US
economically. Russian chauvinism and anti Americanism are again on the rise. US bombing of Iraq made the Russians lament their loss of great power standing. Every significant faction in Russian politics agree that the loss of great power status is intolerable. In a country that has become virtually ungovernable, this powerful national pride is now the only means of uniting the country.
Germany is now deeply torn in seeking its destiny. The political instincts of the new government, forged in the left movements of 1960s, reflect a profound uneasiness with the United States and its leadership,
in economics and in European security. Yet, fear of Russia is also a visceral feeling in Germany. The EMU is an opportunity to transform Germany into a legitimate leading component of a unified Europe
Asia is unable to generate sufficient capital to solve the problems created by unregulated capitalism, unable to restructure its economies to generate that new capital, and unwilling to allow an uncontrolled influx of American capital on American terms. The euro may open an alternative source of capital for Asia
with a part of the West that is less predatory. Asia may be forced to seek to insulate itself from the United States to create Asian institutions to supplant the global institutions within which Asian economies have been unable to participate on a equal basis. Asian economies will resist American demands for further trade liberalization, rely instead on
Asian solutions, and use the yen and the euro as reserve currencies as counter balances.
Like Russia, Asia's efforts to work around its fundamentally insoluble economic
malaise will lead to increased friction with the United States on all levels. This will lead to a new awareness of camaraderie. The reemergence of a Moscow-Beijing strategic alliance is already under way, designed to block unilateral American actions in Eurasia. Furthermore, this relationship will insulate Russia and China from U.S. political and military pressure, and create politico-military counter-pressure on the United States designed to elicit better economic terms. 1999 will be the year in which this alliance will take full shape. Europe will
be a major center of the multi-polar world of Sino-Russia strategy and the euro
will give economic foundation to this trend.
Japan too is increasingly at odds with the United States over economic policy. As U.S. pressure on Japan to liberalize its markets increases, Japan's search for alternatives will increase in return. the Japanese Prime Minister has announce his intention to promote a dollar-euro-yen tri-polar currency regime during his official European trip this week. France is already clearly cooperating with China and Russia. This was visible in the Iraq affair. France will put pressure on the new Europe powerful with the new euro. French foreign policy being traditionally anti-American, the EMU will be not escape this influence.
Socialist movements, having been pushed to the sideline for more than a decade,
will find tactical opportunities in the complex restructuring of the global order, accelerated by the emergence of a unified Europe that is dominated by social democrat governments. The many factions of the left need to formulate a
unified, realistic and effective geopolitical strategy to advance their common cause.
Henry C.K. Liu
Doug Henwood wrote:
> I'm kind of out of touch down here in Appalachia, but it seems the euro has
> had a remarkable debut, with continental stock markets up about 5% and the
> currency strong against the US$. What it's all mean? Any thoughts, esp from
> you folks over there in Euroland?
>
> Doug