Euro is born as ministers hail move towards political union

RARELY IN the history of the world can power - real power, the power of money - have been given up with so little fuss.

Eleven sovereign nations yesterday handed over control of their currencies to a committee of bankers. The meeting took less than 30 minutes.

Five hundred blue balloons were released into the sky over Brussels. The euro, the world's newest, least visible and second most important currency was born (weighing in at slightly more than a dollar or just over 70 pence). The Eurosceptics - and not just in Britain - said it could never happen; or if it did happen it would cause a European recession, street-fighting or even civil war.

But the euro is coming into being to the polite, overwhelmingly positive but rather distracted welcome of the 300 million citizens of the European Union. (Last night's new year celebrations claimed a much bigger share of most Eurolanders' attention).

The quiet welcome is understandable. For three years, the heavyweight baby with the ugly name will not be allowed to appear in public. The franc, mark, lira and others will remain, nominally, in the pockets and wallets of Eurolanders. The euro will be allowed out on the street only in the form of plastic money and cheques (and even then only if a shop or restaurant is willing to take it).

But, in real terms, the 10 old currencies - two of them, the franc and the florin, with 12 centuries of history between them - died yesterday. They have ceased to exist as independent instruments of national pride or economic policy. They are now mere accounting units of the euro. Their exchange rates against the new currency were yesterday locked until the euro finally sweeps them away in July 2002.

The 11 finance ministers of the euro nations (Britain not being represented) decided, in a ceremony broadcast throughout Europe, that a euro is worth 1.95583 Deutschmarks, 6.55957 French francs and so on. All decisions affecting the new currency, on interest rates or monetary flows, will be taken by the European Central Bank in Frankfurt.

Yesterday's calm in Euroland was therefore, in another sense, misleading and perplexing. Something huge was happening but the reaction was an enthusiastic lack of interest. The comments by several Euroland ministers, foreshadowing a euro-driven movement towards a more federal Europe will (perversely) delight the Eurosceptics and annoy the Blair government. But they are a recognition of reality.

Hailing the formal establishment of the euro, Jacques Santer, the European Commission President, argued: "Europe can speak with a single voice. It is now up to us to proceed. We embark on the next stage leading to political unity which, I think, is a direct consequence of economic unity, so Europe can play a leading role on the international stage, even including a common defence policy. This goes well beyond the introduction merely of the euro. It heralds a new departure for Europe."

The French Finance Minister, Dominique Strauss-Kahn, argued that the euro-11 committee of finance ministers will become the "economic government" of Europe, and Italy's Carlo Azeglio Ciampi hailed the currency as a "decisive step towards ever closer political and institutional union in Europe".

And indeed, for all that the Blair government denies it, to have a single European currency will progressively demand more co-operation on the big economic and political decisions affecting everything from public spending to unemployment and, up to a point, taxes. In turn, this will - or should - demand more direct democratic control of decision-making in Brussels, which would, itself, be a federalising influence: another step towards some form of "European government", however loosely drawn.

The EEC/EC/EU has always proceeded this way (stealthily if you like, but its aims always made clear). It sets ambitious but abstract economic targets - the common market, the single market, now the single currency. The often unseemly struggle to achieve these targets, and make them stick, forces member states to draw closer and closer together politically.

There are good economic arguments for the euro. It has already sheltered Europe from the worst of the Asian economic flu. The euro countries have minimal inflation and low interest rates (unlike Britain). The OECD predicts that the EU will be the most dynamic region of the world next year.

But the euro was not invented for these reasons alone. It was also invented to answer the threat from German unity by forcing more European economic - and therefore political - unity.

A single European currency will - from 2002 when it becomes holdable and foldable - bring Europe alive to its citizens for the first time. There is potential in the euro for the creation of a truly European political consciousness. But also the potential for disaster. If the Eurolanders start to feel economic pain before "bonding" with the new currency they will inevitably blame the surreal new money in their wallets.

And what should Britain do? We are back where we started. We did not want the common market but once it prospered we had to join. There are perhaps good economic reasons why Britain would never have wished for the euro; but once it exists and succeeds, we are asked a different question. Can you afford to stay out?

Launch of the euro, page 10,

Leading article, Review, page 3