The euro’s simultaneous introduction last Tuesday to 12 different European countries and nearly 300 million people was probably the biggest single step in a half-century of off-again, on-again efforts to instill a sense of unity among Europe’s disparate peoples. Certainly, it is the most tangible manifestation of the joint European project that has been frequently maligned for being bureaucratic, remote, and aloof from the peoples whom it nominally represents. There is no question that Europe and its constituent parts have pulled off a collective coup that even its strongest advocates scarcely dared hope for a decade ago, when the creation of a single currency became a stated goal of the European Union. By most opinions, the initial transition went unexpectedly smoothly, after some fearful foreboding, all over Europe but especially in Greece, which had been fingered (including by the European commissioner for monetary affairs, Pedro Solbes) as being under-prepared for the change. Instead, Greece emerged as one of a handful of countries which ushered in a relatively painless, if not quite problem-free, transition, congratulated by an almost giddy European Commission President Romano Prodi as a model for other states embracing the European project. The euro’s quick and decisive introduction obscures the pains and frequent false starts of past years just to get to this stage. It has also bred speculation, overstated and probably misplaced, that it will immediately push forward moves toward political integration in Europe. But such a shift is anything but automatic. Indeed, at least in the short term, the euro could actually prove to be the exception rather than the rule – an undoubted success in an otherwise troubled time for European identity and the EU. In this context, admiration leavened with caution is called for. No Brave New World yet The single currency project is both highly symbolic and thoroughly pragmatic. It is the central plank in the EU’s thrust toward Economic and Monetary Union (EMU), along with the European Single Market that was launched in 1992. They are designated keys to improving Europeans’ standard of living, stimulating economic growth and harmonizing economic life throughout the Union. And implementing the EMU has involved taking monetary policy out of the hands of politicians and putting it into those of economists and technocrats at the European Central Bank (ECB). Still, there is no overlooking the fact that the common currency project has always been a political, and sometimes intensely politicized, element of European cooperation. The EU, and its EEC and EC forerunners, have been built on the basis of economic cooperation within political institutions. But euro market construction has also required member states to accept an unprecedented ceding of national sovereignty from their own economic institutions (central banks, finance ministries) to the ECB in Frankfurt. And the euro’s introduction changes the political rules of the game, both within and outside Europe. In the EU itself, one of the biggest (if often overlooked) surprises is that the EU could successfully launch such a common project without some of its members participating. In the process, the EU showed that, contrary to widespread opinion, it is not merely as strong as its weakest link. As the common currency becomes the new status quo and part of the existing body of policies and laws known as the acquis communautaire (to which incoming states must adhere), it will also affect the enlargement process. Up to 10 states are on the membership waiting list, and they now face the added pressure of getting their economies ready to join a single currency bloc as well as a single market. Fiscal, interest rate and exchange rate policies are now involved, not just basic trade or industrial policy. Outside the EU, the eurozone is bound to increase Europe’s economic muscle in international trade and financial diplomacy. Already China has announced that its reserve-currency policy will be altered to allow significant holdings of the euro along with the dollar. The euro’s importance, both within and outside Europe, clearly extends far beyond its nominal exchange rate, which has been relatively weak vis-a-vis the dollar, since its launch as a «virtual» currency in 1999, a weakness that has been latched onto by many euro critics as evidence of endemic weakness in the project as a whole. True union still far away Yet for all that, the euro’s introduction does not represent any kind of finish line in Europe’s overall political evolution, nor even completion of EMU itself. Three EU member states still remain outside (Denmark, the UK, and Sweden), although last week’s smooth introduction could force them to rethink earlier decisions to abstain and speed up their day of reckoning. A broader problem is a continuing mismatch in economic policy competencies; Europe now runs a (mainly) common monetary policy, along with a single market in goods and services, yet fiscal (notably tax) policies remain in the hands of the member states, while the EU budget itself is far too small to effect genuine economic redistribution (Greece being the big, lucky exception here, with its continuing windfall from the third Community Support Framework). Many hope that the euro will force faster structural reforms, but that is far from a certainty. And there is ample evidence of continuing economic stagnation in Germany and elsewhere, a reminder that a new currency alone does not boost economic growth, even if it provides for greater transparency in the pricing of goods and services and enables comparisons in, for example, salary scales. Interest rate policy is also crucial, and the ECB has been loath to cut rates in the effort to establish independent credibility. A possible spike in inflation in coming months, resulting from the widespread «rounding up» of prices in some countries (including Greece), may be a reason for the ECB’s seemingly tightfisted approach, which has come under considerable criticism in the face of weak European economies. Furthermore, there is little reason to think the euro’s launch will have an immediate positive knock-on effect on wider efforts to promote closer political integration. The three great, overtly «political» pushes at the moment – enlargement, institutional reform, and the nascent common foreign and security policy – all represent long-term challenges before the EU that will reflect numerous other factors. Indeed the euro’s introduction has also brought new and unexpected political pressures at the domestic level; already this week in Greece, there has been vocal union pressure to boost wages closer to European levels, and more of the same could prove politically difficult both at home and in Brussels for the PASOK government, justifiably proud of its accomplishment in getting Greece into the eurozone in the first place. Even if it fails to kick the integration process into higher gear in the short-run, the euro’s introduction remains a landmark economic and political achievement that will have indirect but important long-term implications for Europe’s growing international identity. It will not in itself lead to closer political union, and it will expose existing economic discrepancies as the euro loses its novelty and becomes the mundane reality. Sooner or later, the worst of these discrepancies will have to be addressed if Europe is to gain political muscle to match its shiny new monetary identity. It’s been a long, long time in the making The euro may have entered our lives with lightning quickness on January 1, but it came after 30 years of slow and sometimes tortuous efforts to establish a single European monetary identity. The Werner Report (1970) first set out the goal of economic union for what was then the European Economic Community consisting of just six member states. After several years of failed currency coordination under the «snake» system, the notion of EMU was resurrected in 1977 by the European Commission under Roy Jenkins. The European Monetary System, with its twin foundations in the Exchange Rate Mechanism and the European Currency Unit, was launched in 1979 with strong support from German Chancellor Helmut Schmidt and French President Valery Giscard d’Estaing. A decade later, following the Single European Act of 1986, the Delors Committee report called for a gradual move toward monetary union, and served as a basis for an intergovernmental conference on EMU. The Treaty on European Union (Maastricht treaty) of 1991 set out a three-stage transitional period, specific deadlines, and a clear end-goal of a common currency beginning in 1999. Europe then passed through a dizzyingly complicated array of «transitional junk» leading to the euro, involving convergence criteria, fluctuation bands and the like that would stretch the faculties of the most dedicated economists, much less Europeans themselves. In the first stage, in 1990, exchange controls began to be abolished between European member states; in 1994 the European Monetary Institute (EMI) was established; and in 1999 the third stage was launched with irrevocably fixed exchange rates, establishment of the euro as a «virtual currency,» used for transactions between financial institutions, and establishment of the European Central Bank (ECB). If nothing else, the euro’s introduction as a physical currency on January 1, 2002 in 12 of the 15 EU member states dramatically simplifies the making of European monetary policy as well as bringing it down to the level of the everyday citizen.