Euro’s Introduction Made for Historical Achievement

Euro’s Introduction Made for Historical Achievement

BY PHILIP MONTGOMERY
Rice News Staff

The introduction of the euro marks a watershed in European economic history, a leader in the European Central Bank recently told a Rice audience.

“The successful introduction of the euro represents one of the greatest achievements in modern European economic history,” said Christian Noyer, a vice president of the European Central Bank. “As investor confidence grows and as more European Union member states join the euro area, the euro’s role as an international currency is destined to gain in importance.”

Noyer presented a talk titled “The Euro from A to Z” Jan. 11 at James A. Baker III Hall. The event was presented by and co-sponsored by the James A. Baker III Institute for Public Policy and the European Institute in Washington with the support of the Shell Oil Co. Foundation, Barclays Capital and the European Commission.

“The European Union, even though it lacks international personality, is characterized by a substantial and growing degree of political cooperation and coordination,” Noyer said. “This applies to justice and home affairs as well as to foreign and security policies.”

The creation of a common currency, the euro, will encourage more political cooperation and harmony, he said.

The groundwork for the euro “lay in the ruin following the second world war” when six countries signed the Treaty of Paris in 1951 to establish the European Coal and Steel Community, Noyer said. That treaty led to the creation in 1957 of the European Economic Community, which fostered the creation of a common market for goods, capital and labor.

Now, the European Union is a highly integrated single market with about 380 million people, which combines the economies of 15 European countries, Noyer said.
While the European Union is composed of 15 member states, only 11 have adopted the euro. The Treaty of Maastricht led to the creation of the necessary framework and timetable for the creation of the Economic and Monetary Union in Europe with a single currency.

The Eurosystem, a “user friendly” way of referring to the European Central Bank and the 11 national central banks of those countries that have adopted the euro, Noyer explained, is modeled after the U.S. Federal Reserve. The role of the 11 national central banks is implementing of monetary policy and other tasks, including issuing money.

Noyer emphasized the importance of sound budgetary and structural policies that are now in place, but he also pointed out the challenges facing the Eurosystem.

“The most important challenge to the Eurosystem was the definition of the appropriate monetary policy of the euro area as a whole,” he said. “The Eurosystem had to navigate uncharted waters, since it could neither build upon practical experience with policies for the euro area as a whole nor on any reputation of its own. In fact, apart from theoretical considerations and econometric test runs, we had—in that sense—to start right from scratch.”

Noyer noted that recent travelers to Europe, having noticed the French francs, Deutsche marks and Italian liras changing hands, may have asked themselves about the euro currency.

“While national banknotes and coins remain in circulation for the time being, they are no longer, despite appearances, actual currencies in their own right,” Noyer said. “They are, in fact, subunits of the euro, waiting to be replaced by euro banknotes and coins as soon as these are introduced at the beginning of 2002. Only then, I suppose, will we have finally completed one of the greatest achievements in modern European history, that is, the introduction of the euro.”