The New York Times
January 1, 1999
THE NEW EUROPE
11 Countries Tie Europe Together in One Currency
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By EDMUND L. ANDREWS
BRUSSELS, Belgium -- They had to struggle a bit to open some recalcitrant bottles of champagne, but finance ministers from 11 countries celebrated New Year's Eve Thursday by launching the euro as the continent's new unified currency.
In the last step after years of preparation, the countries locked in the exchange rates of their individual currencies to the euro, thereby setting the value at which the euro will begin trading when financial markets open around the world on Monday. Based on these rates, the euro will be worth about $1.17.
In technical terms, the action taken Thursday was perfunctory and anti-climactic -- nothing more than plugging in numbers according to a formula. But in political and economic terms, it represented the culmination of a effort first conceived in the 1950s as a means of unifying Europe and preventing another world war.
"We stand at the dawn of a new era in the integration of Europe," said Rudolf Edlinger, Austria's finance minister and chairman of the meeting here. "Forty years of inexorable striving toward integration has been crowned by the realization of economic and monetary union."
The fixing of exchange rates also kicked off a frenzied scramble by banks, stock exchanges and securities traders across Europe to adapt their computer systems between now and Monday morning.
And despite the celebrations, there were clear signs of continuing divisions over both economic policy and the levers of power. German officials demanded that the European Central Bank, which is now the equivalent of the U.S. Federal Reserve Board, use monetary policy to help boost employment and not focus simply on fighting inflation -- a demand that has already created deep animosity among other countries' central bankers.
Even though euro notes and coins will not enter circulation until Jan. 1, 2002, European banks and stock exchanges are now required to carry out all non-cash transactions in euros.
In London's financial center, more than 30,000 people will be working through the weekend to reprogram computers and trading systems on the basis of the currency values agreed upon Thursday. Across Europe, banks are converting their systems to offer euro-denominated bank accounts immediately for any customers who want them.
Though national currencies like the German mark and French franc will remain in circulation until July 1, 2002, they will trade in lockstep with the euro until they are phased out entirely.
The action taken Thursday was necessary to set the relative values of participating countries' individual currencies before the euro enters world financial markets. However, the values have been more or less established for some time, because the monetary policies of the countries have been yoked together since last spring.
As a practical matter, exchange rates among European currencies have varied little for more than a year.
"In the end, it turned out to be almost a formality, different from what many of us expected just a year ago," remarked Wim Duisenberg, the Dutch president of the European Central Bank.
To liven things up a bit, European officials capped off their formal action Thursday by launching hundreds of balloons here with blue and yellow euro markings. Finance ministers also posed for pictures popping the ritual bottles of champagne, though some of the bottles proved so balky that several finance ministers turned red in the face as they wrestled with the corks.
Champagne aside, most of those here Thursday focused their attention on the great distance they had come and to predict that Europe that would be bigger, stronger, more prosperous and more peaceful as a result of the single currency.
"Europe will now have the wherewithal to direct its own future," said Jacques Santer, president of the European Commission. "The euro is not an end in itself. It is an instrument for economic development, social development. And now it is up to us to use this instrument."
Dominique Strauss-Kahn, France's finance minister, said: "Today is clearly a historic day for the European enterprise. Europe will be strong, stronger than in the past, because it will speak with a single monetary voice."
But even on Thursday, there were signs of potential battles ahead.
One hint came from Duisenberg, a former Dutch central banker who was named president of the European Central Bank only after a bitter political fight last May between France and Germany. Duisenberg, a conservative on monetary policy, was favored by Helmut Kohl, who was then chancellor of Germany. But President Jacques Chirac of France insisted on the head of the Bank of France, Jean-Claude Trichet.
Germany and France eventually cut a deal under which Duisenberg would become president of the new Euroepan bank, but "voluntarily" agree to step down well ahead of the end of his eight-year term.
But in an interview published Wednesday in the French newspaper Le Monde, Duisenberg indicated he might not quit after all. On Thursday, he said he would not elaborate on that statement.
Duisenberg's seeming new stance comes as many political leaders are pressuring the new central bank he heads to focus more on stimulating growth and new jobs. Under the Maastricht Treaty that set the ground rules for the euro, the bank is supposed to focus exclusively on preserving stable prices.
Duisenberg has been an outspoken defender of that mandate, putting him on a collision course with Germany's new center-left government under Chancellor Gerhard Schroeder and Finance Minister Oskar Lafontaine.
Lafontaine did not take part in the ceremonies Thursday, pleading long-standing vacation plans. But his stand-in, Economics Minister Werner Mueller, appealed for coordinated action among European countries to increase job creation and for help from the new central bank.
"We must now score tangible successes in the areas of employment and growth," Mueller said. "The European Central Bank facilitates this not only by fulfilling its responsibilities for stability. It can also, within the framework of its resources, target itself toward the support of growth and employment."
Mueller also called for "coordinated" wage policies between countries that "have a goal of greater employment success." That echoed Lafontaine's calls for European countries to avoid undercutting each other on labor costs.
Unity on economic policy will be difficult. In Britain, which is staying outside the currency union for at least the next year or two, some newspapers have demonized Lafontaine as a man who would force Britain to abandon its comparatively laissez-faire policies.
But France's Strauss-Kahn captured the thoughts of many here, saying that European countries would gain self-determination by having more strength in the face of global economic turbulence.
"My profound conviction is that we will gain in sovereignty rather than losing it by sharing it with others," he said.