It is not a question that was answered yesterday by the Council of the new European Central Bank meeting in Brussels. Like their global counterparts meeting in Jackson Hole, Kansas last week, the central bankers of Europe have learned that, when there are crises, it is best to stay mum, lest anything they say be taken down in evidence and used by the traders against them.
To be fair, the bankers probably don't know very much more than the rest of us. On the one hand it could be argued that Russia's problems can only serve to make the necessary convergence of Continental economies that much more difficult. It hits Germany disproportionately more than other countries and threatens to still the German-led economic revival on which the euro was supposed to float. If the Germans were finding it difficult before this crisis to accept the degree of subsidy necessary to help other countries into the euro, think what they will say now.
On the other hand, the stability of a common currency becomes all the more attractive, especially to the Germans, when there is greater instability to the east. In so far as this is, for the moment, primarily a crisis in the financial markets, then continental Europe, which has relatively less developed equity and bond markets than Asia, America or the UK, should be less affected. If Germany is indeed more restrained than the other EU members, it may make convergence actually easier.
The issue is less divergence of effect - a lessening factor in the global marketplace - than how to respond as a whole. If the world, and its major economies, are really threatened with recession now, or at least a slowdown in growth, the euro can undoubtedly help.
For a start, the very fact of the preparations for the new currency are creating their own momentum. It may be that the timing, at the very moment when banks and institutions have to cope with the millennium bug, is less than perfect. It may be that the general economic circumstances are unhelpful. But the political determination to see this leap into the dark undertaken on time and with as large a group as possible has induced considerable investment and activity in its own right that will serve well if the engines of growth slow elsewhere.
At the same time the concentration on convergence and common economic decision-making should help hold Europe together under pressure, despite the temptation for each country to go its own way The euro project has developed so far in an atmosphere of recovery. It will do its architects no harm if they have to remodel it to withstand reverses and markets that go down as well as up. There is a strong case now for a general global reduction in interest rates to counterbalance recession without reigniting inflation. A co-ordinated European response, helped along by the European Central Bank, could be a key factor. .
As for Britain, its position remains a peculiar one - half in, but apart from the euro and its policy decisions. Like the rest of Europe, and like the US, the Bank of England now needs to think of lower rates not higher. But unlike the rest of Europe we have an internationally-traded currency which is thrown about by financial upsets in the rest of the world with no regard for the domestic economy. The worst thing that could happen to us now would be for uncertainty over the euro and an American slowdown to result in a soaring pound.
Which is why cannot sit on the sidelines forever, or even for now. The one lesson of the latest turmoil is that the idea of independent economic policy-making is a thing of the past. Whether we like it or not, we are part of a global system in which the euro is now the most important new dimension.Reuse content