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On the Eve of the Euro:
Implications of European Economic and Monetary Union
Global Beat Issue Brief No. 47
Report Prepared by Paul Tooher*, December 16, 1998
Center for War, Peace, and the News Media Press Briefing with Ambassador Hugo Paemen, Head of the Delegation of the European Commission, Washington, D.C.
Co-sponsored by the Delegation of the European Commission in Washington, D.C.
 
In less than two weeks, 11 European nations will take a giant step toward the "consolidation of a single European market" with the introduction of a single currency, a high-level European official said yesterday.
 
Ambassador Hugo Paemen, the European Commission's representative to the United States, told reporters that the new currency -- called the euro -- is an "irreversible" step in a process that will eventually create a single market with nearly 500 million consumers and stretch from the Atlantic Ocean to the Russian border.
 
During a telephone briefing hosted by New York University's Center for War, Peace, and the News Media and the Delegation of the European Commission in Washington, D.C., Paemen said that monetary union was one of two major initiatives reshaping Europe today. European leaders last week also concluded several days of talks on enlarging the current union to include central European nations, such as Poland and Hungary.
 
When these nations join the existing 15 countries that make up the European Union, Paemen said, they will add more than 100 million citizens, making the population of the European Union greater than that of the United States, Canada, Japan, Australia and New Zealand combined.
 
Starting January 1, 1999, individual European currencies will no longer exist except as fixed denominations of the euro, at a value determined at 11 p.m. on December 31, 1998 by finance ministers of the participating countries.
 
Government bonds will now be issued in euros, as will prices quoted on European stock exchanges. Businesses will conduct transactions in euros. Consumers will be immediately be able to open bank accounts, buy travelers checks and use credit cards using the new currency.
 
Everything seems to be ready for a smooth start, Paemen said. "The banking community has told us that they are ready," Paemen said. "Even the currency operations in London are more than ready," he said, even though Britain is technically not participating.
 
 
Britain and the Euro
 
Paemen said even those European Union countries that decided not to participate in the first round of monetary union -- Britain, Sweden, Denmark and Greece -- appear ready to cope with the single currency.
 
He noted that although Britain had decided not to join the single currency yet, bankers and other business leaders in the City of London are already telling their international clients that "Britain is out but the City is in" the new euro economy. "London," Paemen noted, "doesn't want to lose the business" that the euro is expected to bring.
 
Paemen said he believes that British Prime Minister Tony Blair will hold a national referendum on his country's abandoning the pound for the euro by 2002 at the latest, meaning that Britain could be part of the monetary union when the new currency goes into circulation.
 
"A certain amount of education needs to be conducted in Britain first," Paemen said. "Mr. Blair is a smart politician and like any smart politician, he will hold the referendum when he's sure it will pass."
 
 
A Long, Difficult Process
 
Paemen said that while the idea of a single European currency had been viewed as a "bureaucrat's pipe dream" by many in Europe and overseas just a few years ago, the only remaining skeptics are academics who argue that the economies of individual European countries are not similar enough to sustain a common currency.
 
"When I arrived [in Washington] three years ago, there was no time to talk about the euro. They [the Americans] didn't seem to think that we could make such a dramatic decision. I understood that we'd better do it first, then they'd talk about it," he said, conceding that "our past was not brilliant in terms of efficient decision making." However, Paemen singled out U.S. Treasury Secretary Robert Rubin and Federal Reserve Chairman Alan Greenspan as having "been very supportive because they saw the advantages" of a single currency.
 
"It was not an easy process" for all of the 11 countries to meet the convergence criteria established for joining the euro, Paemen said. For many, it meant reducing their rates of inflation and national debt levels.
 
"But they were willing to do so," he said. He added that he believes the eventual success or failure of monetary union will be judged by how these countries continue to manage their individual economies to encourage growth while keeping inflation under control.
 
 
The Euro and Asia
 
Paemen said that the economic crisis is Asia has had less affect on Europe than it has on the United States. "Our trade with Asia is less important than it is for the United States," he said although he noted that some European banks were heavily involved in Japan.
 
The single currency ultimately should help Asia, at least indirectly, by stimulating growth in the world economy, he noted. But Paemen also said that "quite a lot of capital will go to Europe" in the near term, particularly from Japan and China, two countries looking to reduce dependence on investment in troubled Asian countries.
 
 
Good or Bad News for US Companies?
 
Paemen also said that the introduction of the euro should be good news for big American companies doing business in Europe. He cited Microsoft and Coca-Cola as two American giants who have long seen Europe as a single market and therefore have minimal technical adjustments to make in their day-to-day activities. "They are ready," he said.
 
"This should have a positive impact on the US economy," said Paemen, because it makes daily business with Europe simpler and more transparent. US companies may even benefit more than European companies," he said, because they are more comfortable with big markets.
But "small and medium-sized enterprises will have a difficult adjustment period because they don't have the [technical] expertise," Paemen said.
 
 
A second global currency
 
In the international currency market, Paemen said he expects the euro will have "a substantial influence on how the international financial system operates because the dollar won't be the only currency" supported by a strong economy.
 
He said that at present 50 percent of world trade is conducted in U.S. dollars, even while the US share of that trade is only 20 percent. He said he believes the euro eventually will join the dollar, along with the yen, among the world's major currencies. He said he anticipates approximately 25 percent of world trade to eventually be conducted in euros.
 
China, for example, wants to convert some of its large currency reserves into euros, said Paemen.
 
 
Clinton's Troubles and the EU/US Summit
 
Paemen said the current political crisis occupying Washington has had little impact on his dealing with high-level U.S. officials. "But whether this will have an impact if it drags on and on is another issue," he said.
 
Paemen and the EU President, Jacques Santer, are scheduled to meet with President Clinton and other U.S. officials on Friday -- just as the House of Representatives may be voting on impeachment -- to discuss the introduction of the euro in the latest round of the twice-yearly EU-US meetings.
 
"I'm sure it's not an easy situation for the president, Paemen said, "but they want to stick to the program."
 
 
Trade Wars and Bananas
 
Among the topics likely to be discussed is the current dispute over Europe's policy regarding import rules on bananas. The U.S. has threatened to impose sanctions against the EU unless it changes its current policy of favoring Caribbean producers over those in Central America.
 
Paemen said he was optimistic sanctions could be avoided and the conflict resolved. He said that the high level of economic activity between the United States and Europe makes such disputes unavoidable.
 
"We have gone through a lot of so-called wars," he said. "It started with the chicken war in the '60s." But, he said, "it's quite normal that interests clash when you live so close. About 95 percent of trade between the U.S. and Europe happens with no governmental interference at all. We are nearly in a free trade zone. So we have to deal with these disputes when they spring up," he said.
 
"The risk of accidents becomes greater when there's a lot of traffic on the highway," he said. He said that the EU favors allowing the dispute be settled by the World Trade Organization and said that the EU planned "to live up to the rules and procedures of the WTO."
 
 
One Voice
 
Paemen said that the next step for Europe was to create the political institutions that reflect its economic power.
 
"We need someone who can speak in the name of Europe," he said, especially on international matters, such as the crisis in the former Yugoslavia and the Middle East.
 
"We have that now in trade and tomorrow in monetary affairs," he said. "We have to organize ourselves so someone speaks for the EU" in critical diplomatic issues.
 
 
Ambassador Paemen has been Head of the Delegation of the European Commission in Washington, D.C., the Commission's most prestigious overseas posting, since October 1996. A career diplomat, he served in the Belgian Embassies in Geneva, Paris and Washington, before he was appointed Chef de Cabinet to Viscount Davignon when the latter was appointed Vice-President of the European Commission in 1978. In 1985, Hugo Paemen became the official spokesman of the Commission headed by President Jaques Delors. Then, in 1987, as the European Commission's Deputy Director General for External Relations, he took over responsibility for the Commission's Uruguay Round negotiating team, playing a key role in a post he was told to hold for almost the entire duration of the Round.
 
 
* Paul Tooher is Senior News Editor for the Providence Journal
75 Fountain St, Providence, RI 02902
Phone: 401-277-7124
Fax: 401-277-7346
email: ptooher@projo.com
 
For more information on covering the euro or the European Union, check out:
 
For more information on the European Union, please visit the homepage of the Delegation of the European Commission in Washington, D.C.
 

LIST OF PARTICIPANTS:
 
Dean Calbreath, Business Writer, The San Diego Union-Tribune
 
Harry Dunphy, Reporter, International Desk, Associated Press
 
Jocelyn Ford, Tokyo Bureau Chief, Marketplace Radio
 
Akio Fujii, Chief Washington Correspondent, Nikkei
 
Maureen Herman, Assistant Editor, Foreign Service Journal
 
Elisabeth McKeon, Director, Global Policy Project, UNA-USA
 
Philippe Moulier, International Affairs Reporter, US News and World Report
 
Kaoru Nishizaki, Business Correspondent, Asahi Shimbun
 
Hiroshi Okabe, Economics Correspondent, Kyodo News
 
Michael Phillips, International Economics Reporter, Wall Street Journal
 
Paul Tooher, Senior News Editor, Providence Journal
 
Marsha VandeBerg, Columnist, VandeBerg World Report
 
Martha Wexler, Editor, Europe and former Soviet Union, National Public Radio
 
Kevin Whitelaw, Associate Editor, US News and World Report
 
Pat Widder, Editorial Board Member, Chicago Tribune
 

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