The New York Times
January 1, 1999
THE NEW EUROPE: FOUNDING FATHERS
Its 3 Fathers Are Proud of Baby Euro, and Certain It Will Grow Up Strong
Related Articles 11 Countries Tie Europe Together in One
By CRAIG R. WHITNEY
HAMBURG, Germany -- Twenty years ago, when he was chancellor of West Germany, Helmut Schmidt thought there would be a single European currency by the early 1980s. Instead, he is still carrying around six different kinds of money in his briefcase.
"I always have the German mark, English pounds, French francs, Swiss francs and Italian lire, plus American dollars, but I always end up just using credit cards," laughed Schmidt, who travels frequently as a publisher of the weekly newspaper Die Zeit.
But as of January, he can write checks in euros, the common currency that 11 countries in the European Union are introducing, almost two decades later than he and other European leaders had planned. And three years from now, he will finally be able to put euro notes in his briefcase.
The euro's launching is a particular point of pride for Schmidt and two other prominent European leaders, Valery Giscard d'Estaing, once president of France, and Sir Edward Heath, the former prime minister of Britain. The three men took some of the earliest steps toward a single currency, in the 1970s, and kept promoting the idea even when it lost its luster.
"It should have happened a lot earlier," said Schmidt, 80.
Indeed, it could have, agreed Sir Edward, 82, who negotiated the 1972 treaty that took Britain into the European Economic Community when he was prime minister. Later that year, he and other European leaders endorsed a plan devised by Pierre Werner, then the prime minister of Luxembourg, for a common European currency to combat the monetary instability caused by the collapse of the Bretton Woods system, which had been based on the dollar.
"We hoped then to have it done by 1980," he said, but the sharp rise in oil prices in 1973 derailed the project.
Giscard d'Estaing, now 72, and Schmidt, friends from the days when both served as finance ministers, tried to get monetary union back on the rails over drinks in Schmidt's lakeside cottage north of here in 1978.
They persuaded fellow European leaders to establish something called the European Currency Unit, expecting it to become coin of the European realm by the early 1980s, but it failed to speed the process.
"The delay was unnecessarily long," Giscard d'Estaing said in an interview in the French Parliament, "and without wanting to be too severe, I think it was caused by indifference and to some extent lack of financial literacy on the part of the European leaders of the early 1980s. They did not ascribe the same importance to it as we did, and maybe they were hesitant to get into the technical details, so the system went into a kind of hibernation from 1981 to 1988."
Then, with the collapse of communism in 1989, French President Francois Mitterrand and German Chancellor Helmut Kohl pushed harder for the common currency again, partly to bind a reunited Germany more firmly into a new single European market.
But even then, Prime Minister Margaret Thatcher and her successor, John Major, kept Britain out. And, Schmidt said, "the central bank officials in the other countries did not want to lose their power so they invented a thousand conditions, but in the end the idea finally prevailed."
"If they'd only listened to us" was the common refrain in separate interviews recently with these fathers of the euro as they fretted impatiently for the long-awaited birth.
To listen to them now, a common currency, strengthening the unified market that came into its own in 1993 when the last customs and tariff barriers fell in the European Union, will finally give Europe the opportunity to become a global power.
Heath harrumphed all reservations aside in an interview in his London pied-a-terre, near Eaton Square. "There's no single market in the world without a single currency, not in Japan and certainly not in the United States," he said. "Imagine what the United States would be now if each of the 50 states had its own currency!"
With new confidence in the stability of the economic and monetary policy of Europe, according to the these most enthusiastic of the euro's cheerleaders, dynamic growth could finally cure the Continent's chronic unemployment problem. And investors around the world, they say, may welcome a strong new currency that can diversify portfolios.
That could weaken the dollar and force up interest rates in the United States, they concede, but they shrug that off almost as easily as most presidents since Richard M. Nixon have shrugged off the effects of U.S. monetary policy on smaller currencies.
"America and Europe will continue to need each other into the 21st century," Schmidt said, "but it remains to be seen whether the euro is good for the United States. Some governments will shift dollar-denominated assets into euro-denominated ones, which means the U.S. Treasury might have to pay higher interest rates to attract investors."
Giscard d'Estaing, though, wishes the euro were not quite so strong at the start. "The dollar at the moment is a little too weak," he said. "I have the feeling the American economy is slowing down a bit, and that the American authorities accept that. There will be a dynamic between the euro's spontaneous tendency to strengthen, and a monetary policy for the euro that will try to contain that tendency."
The difference in views reflects longstanding divergence in German and French attitudes toward money. For Germany, a strong mark was a symbol a defeated nation could take pride in after the war, a fact Giscard d'Estaing said he had felt obliged to take into account when he and Schmidt devised their 1978 plan.
"For the Germans, the idea of abandoning the Deutsche mark, losing it, and entrusting it to a bank controlled by governments they did not feel as much confidence in as in their own independent central bank, was impossible," Giscard d'Estaing said. "So independence for the European central bank was an essential core idea.
"The ease with which the Germans have accepted the end of the mark surprised me, and I think it surprised them too. The strict criteria, the requirement to cut budget deficits, the independence of the central bank in the plan, all had the merit of reassuring the Germans."
The idea of a strong central bank found its way into the treaty that spelled out the final plan for the euro more than a decade later, though not quite the way Sir Edward would have preferred. Britain, alas, will not use the euro, at least at the start.
"Under our original plan, the City of London would have been the center of the whole deal," he said. Instead, he added, "it all went to Frankfurt," where the new European Central Bank is located.
All three leaders, with vivid memories of what World War II did to their countries, said they hoped monetary union would force the members of the European Union still closer, encouraging them to share sovereignty in foreign, military and domestic policies, not just economics.
Schmidt, a junior officer in the Wehrmacht during the war, looked out of his corner office high over prosperous Hamburg, a city rebuilt on postwar trade with Britain and France, and remembered seeing it as a vast expanse of rubble and flames strewn with bodies after a huge raid by British and U.S. bombers in July 1943. "I'll never forget it," he said.
He and Giscard d'Estaing, who joined the French Resistance as a boy, were on opposite sides then, and both said French reconciliation with Germany is at the heart of modern Europe.
"I want the euro to be an instrument in the federative approach to Europe," Giscard d'Estaing said. "The word 'federative' is a French 18th-century word Montesquieu used. It means sharing power or competence."
That is not the same at all, he added, as the English word "federal," as in the "federal European superstate" so dreaded by Lady Thatcher.
Schmidt said it was nonsense to think that a common currency would fail without a federal European state. "Before 1914 Europeans had one currency: gold," he said. "Parities were fixed and did not change, and all countries followed the constraints that the system entailed."
Heath, who fought Germans as a British artillery officer during the war, thinks his country's reserve is a historical mistake. "I was the only one bold enough to do it," he huffed.
British financial and stock markets, like the Continent's, will start dealing in euros in January, even though Prime Minister Tony Blair's Labor government, like its Conservative predecessor, wants to see how the euro works before Britain decides whether to give up the pound. Giscard d'Estaing said he thought the British attitude was entirely reasonable, but Heath disagreed.
"Ever since the 1950s, Britain has stood aside while all the European arrangements were made, so we had no influence on them, and then we decided to come in later," Heath lamented.
Britain first started negotiations for European membership in 1961, but France's autocratic president, Charles de Gaulle, vetoed it two years later. His successor, Georges Pompidou, relented in 1972.
"Now we're back on the old path," said Heath.
A previous engagement, he said, would keep him from coming to Hamburg on Jan. 6 for a delayed celebration of Schmidt's 80th birthday, which was Dec. 23. But Giscard d'Estaing said he would be there. "We'll celebrate the arrival of the euro together," he said.
