Clarke finds few soulmates in Switzerland
Jeremy Warner hears conflicting views of the future at the World Economic Forum in Davos
Monday 03 February 1997
Not a bit of it. Mr Clarke's recently expressed views, repeated again over the weekend, that monetary union will probably not go ahead on time in 1999 and, even if it does, most European member states will not have converged sufficiently to justify it, are about as out of place here among Europe's elite finance ministers and central bankers as his pro-European views are in his own Cabinet.
Certainty is something that has come to be expected from committed federalists like Jacques Santer, President of the European Commission, who with customary bluntness stated that the process of monetary union was now irreversible. But the case was equally strongly argued by Theo Waigel, Germany's Finance Minister. Monetary union not only would go ahead on time but it ought to, he said.
Rodrigo de Rato y Sigaredo, Deputy Prime Minister of Spain, was equally adamant that Spain would be ready on time, and he waxed lyrical about the benefits and reforms being brought about in the Spanish economy by the push to meet the Maastricht criteria.
Jean-Claude Trichet, governor at the Bank of France, was the same. Far from reinforcing the European social and economic model, monetary union would be a force for change and reform in labour markets, helping to make Europe competitive once more.
Mr Trichet is not a politician: central bankers are very different animals. But he was broadly singing from the same hymn sheet as everybody else. To them, Maastricht is not the straitjacket it is often depicted as in Britain, but a force for change.
Mr Clarke was not entirely alone, however. Ulrich Cartellieri, a member of the board of managing directors of Deutsche Bank, was apocalyptic in his view of monetary union. He predicted that few countries would be able to meet the 1999 deadline and he expected some sort of crisis later this year as markets came to terms with this.
"I am afraid financial markets might soon begin to question whether it is smooth sailing towards the euro or whether there are obstacles in the way and we may be heading towards the rocks," he said.
Howard Davies, deputy governor of the Bank of England, is so concerned about the possible fallout in bond markets if the euro falters he believes banks should ``stress test'' their portfolios to ensure that capital could withstand such a crisis.
And George Soros, the currency speculator and philanthropist, argues that monetary union would create irreconcilable stresses and strains throughout Europe and unparalleled political division. A common currency, he insisted, was merely a stepping stone to fiscal and political union. Without addressing that reality, a broadly based single currency was unworkable. There was also the irrepressible John Neill, chief executive of Unipart, who insisted that it was hard to understand how shorter working hours, longer holidays and higher social and sickness benefits could ever hope to add to Europe's competitiveness.
All these people were very much the exception, however. The general picture was one of faith in the euro and the benefits it would bring.
Mr Clarke spoke in strong terms. Europeans had became unduly obsessed with the currency debate, he said. It was a mistake to believe the answer to enhanced competitiveness was the elimination of an exchange rate risk. No country should go into the euro unless fully convergent, he insisted.
``Convergence is more important than the timetable,'' he said. ``Without very great structural reform in Europe we will be the old countries in decline watching the rest of the world overtaking us.''
But while most of Mr Clarke's remarks about Europe fell on deaf ears, he was in other respects preaching to the converted. There was a surprising degree of unanimity over the need for deregulated labour markets, liberalisation, privatisation, and structural reform in social and pension policy. Even Theo Waigel conceded that Britain had something to teach the rest of Europe in this department.
But perhaps most striking of all is the apparent conversion of Spain to the cause of labour market deregulation. Mr de Rato y Sigaredo, who also doubles as Spain's Finance Minister, was emphatic about the need for more flexibility in labour markets. "In our finances we need to change from a culture of instability to one of stability. This must be accompanied by structural change and deregulation of the labour markets," he said.
What seems to be happening here is that the euro's justification is being reinvented. Convergence and deregulation of labour markets are conditions of Maastricht but the wording is vague and low-priority. Certainly they were aspects of the treaty which most of Europe believed could wait. Not any longer, it would seem. Far from being a way of safeguarding the European social and economic models, the euro is now seen as a motor for change too.
Mr Santer's view of monetary union as a way of protecting the "suitably modernised" European way seems to be an increasingly irrelevant one.
Howard Davies put it best in an aside, when he said the paradox was that economically Britain was much better prepared for monetary union than those politically committed to it.
However, as Europe dashes down the road towards the American model, the US seems to be heading in the opposite direction. There was no disguising the sense of triumphalism among the large US contingent here at the performance of the American economy.
Larry Summers, the US Deputy Treasury Secretary, was happy to take the credit, even though the renaissance in corporate and entrepreneurial America would seem to have little to do with the policies of his administration. None the less, he reflected a general mood of self doubt when he suggested that perhaps the US had something to learn from Europe in dealing with its profound social problems. Competitiveness, it seems, is not everything.
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