Markets hate uncertainty, and they have had it delivered in loads: uncertainty about the East Asian economies, about the Japanese banks, about Brazil's debts, about Russian solvency, about an incipient British recession and, of course, about the American presidency too. The one island of calm seemed to be continental Europe, which was pretty smug. The French and German economies were growing, seemingly undamaged by the Asian downturn, and plans for the euro were going along just fine.
The main worry, it seemed, was how a one-size-fits-all interest rate policy would work in practice. There is an immediate need to reconcile Irish and German interest rates, with Ireland ideally needing higher rates to curb a runaway boom, and Germany maybe needing lower ones to combat disinflation. But this was seen as a technical difficulty. The euro itself, now only three months from launch, was being heralded as providing Europe with an anchor, a point of stability in an uncertain world.
Not any more. Earlier this week, the IMF raised the disagreeable issue of who might be lender of last resort to a euro country's banking system if there was a liquidity crisis. And then people started to ponder the equally disagreeable possibility that, were the Americans to try to engineer a co-ordinated interest rate cut, the new European Central Bank might not fall into line because the needs of the world economy were not part of its remit. Its job is confined to meeting Europe's needs.
Certainly, my colleague who saw Willem Duisenberg, chairman of the ECB, speak earlier this week, felt that his performance was a masterpiece of complacency and arrogance. Certainly looking at his evidence to the European Parliament, there is no recognition that (a) the world might be facing a crisis of deflation, and that falling prices would need different policies to rising prices, (b) there was danger of a "credit crunch", where perfectly credit-worthy borrowers were denied funds because of a more generalised banking malaise, and (c) more than one-third of the world economy was already in recession. Instead, there was a long list of the achievements of himself and his board, and assurances that the preparatory work for EMU was on schedule.
As for the key issue of monetary strategy, that was being postponed. The language that Dr Duisenberg used to report to the European parliamentarians is a bit depressing. Try this sample: "The need to set priorities was also a major factor, opting to schedule our decision on euro area's monetary strategy for the autumn of this year. The determination of a strategy... is a very important decision to be taken...
"Moreover, another reason for not having taken definite decisions regarding the monetary policy strategy, is that the matter requires very thorough consideration."
And so on. Now, to be fair, this focus is understandable. The ECB has first to get the operational details of its new currency right, and sorting out monetary policy arguably can be put off a bit. The fact that its president speaks in pompous Euro-speak rather than the direct language of Britons or (most) Americans can be attributed to cultural and language differences.
But it does rather underline the point that the ECB is going to be little help if there is some general world banking crisis in the coming months. It will be so absorbed with the business of issuing the euro that it will have no space left to think about the problems of the rest of the world.
But, of course, if the world economy heads downwards more seriously than it is already doing, Europe cannot escape unscathed. European businesses know this very well, for more than half their exports are outside the euro area. In the case of Germany, the largest exporter from Europe, no less than 57 per cent of its exports will be to countries outside the single currency. So the idea that continental Europe will continue to enjoy a cyclical recovery, undisturbed by the swirling angst of the rest of the world, and that all it has to do is to get on with introducing the euro, seems curiously complacent.
To say this is not to claim, as the British europhobes would, that the advent of the euro will be an immediate and unmitigated disaster. There will be pockets of immediate difficulty, and some of us believe that ultimately, some years down the line, the currency union will break up. But in the short term bringing in a new currency is as likely to stimulate the various European economies as to depress them. But it does add a new uncertainty, for never before in human history have a group of countries brought in a single currency without agreeing on a degree of political union first. There are no maps for a journey such as this.
The effect, therefore, is to create an even more widespread vacuum at the top. Ask where power normally resides in the world - economic power, that is, rather than military power. The key players have been the finance ministers and central bank governors of the Group of Seven countries, and the most important people within that group have been in the US, Germany and (since they would usually help pay for US initiatives) Japan.
Now, while the US has an exceptionally competent Treasury Secretary in Robert Rubin, ex-Goldman Sachs senior partner, he is part of a somewhat tarnished Administration, and apparently would like to resign when things are smoother. That leaves Alan Greenspan at the Fed, also an extremely able man. But beyond that, who is there? The German government seems about to change, with elections this weekend, and the Bundesbank, that great rock anchoring price stability in Europe, is about to cede many of its powers to the ECB. Japan is so mired in the problems of its own economy and its banking system, that it cannot help much in the East Asian region, let along in the rest of the world.
France and Italy are relative bit players, with finance ministers who do not carry much clout outside their own country, and central bank governors who are about to lose their main function.
As for ourselves, well, we will be politely listened to, but as anyone who has reported on international monetary conferences realises very fast, we only have influence when we do something (like privatisation) which is imitated elsewhere.
Our economic management is more admired now that it was a decade or two ago, and this present government is admired for its political genius. But we would be kidding ourselves if we think we really have clout in the world of international economics.
This is a bad time for the world to have a power vacuum. There is clearly going to be some sort of more general economic downturn. In an ideal world, Europe would either have got the euro up and running during the present expansion, or postponed it until we were through to the next one. As it is, it will be brought in at the worst possible time. Only in the last few days has this alarming truth begun to strike home.Reuse content