Moments That Made The Year : No stopping the single currency juggernaut

Europe has turned the corner and monetary union is inevitable, writes Andrew Marshall
It has been a strange year in Europe, one of manoeuvring and shadowboxing, hedging and ditching. Yet out of this mess, a greater truth is emerging: Europe will have a single currency.

At the beginning of 1996, it would have looked to a casual observer as if monetary union might not happen at all. The economics looked dodgy, the politics worse, and the prospects for success by 1999 seemed slight. By the end of the year, all that had turned around - to the extent that the actual notes were on display. For the first time, monetary union had become a concrete reality, a tangible fact: we could see the colour of the money. It is likely to prove a turning point.

The combination of slow growth in Europe and political opposition have both looked to be formidable obstacles to a single currency ever since the goal was agreed at Maastricht in 1991. The economic numbers from France and Germany (let alone the rest) looked as if they would make the project impossible. And in what could have been an important turning point, monetary union appeared as a divisive issue in the domestic politics of the state which matters more than all the others: Germany. The opposition Social Democrats campaigned against the euro in Baden Wurttemberg under the slogan: "Stability and jobs have priority now. Postpone EMU." But this call was soundly rejected by the electorate.

Bit by bit this year, the project has picked up momentum. At meetings in Verona, in Florence, and in Dublin, the EU started to put flesh on the bones. The new notes, unveiled in Dublin this month, may have been the most visible evidence of progress; but more important still was the so-called "stability pact", an agreement that will regulate the workings of economic policy under monetary union. It is one of the basic building blocks for a single currency.

Technically, it sets the rules for the acceptable limits of budget deficits for countries that participate in the euro. Politically, it ensures that Germany has a guarantee that the euro will be as stable and reliable as its own currency.

None of this means that the struggles are over, of course. The protests against budget cuts that have echoed across the main squares of Europe this year have shown that the divisive effect of cuts and austerity packages can generate anger and effective opposition. There will be more of this next year.

Periodically, the effusion of opposition seems to crystallise into a real problem for monetary union. At least twice this year - in January and September - the flood of protests, expressions of doubt amongst the great and good of Europe and economic rumblings cast doubt on the enterprise.

It is partly a question of perception. Because of the sometimes tortuous way in which EMU advances, and because so much of the preparation is highly technical, the solidity of the single currency seems in doubt. Roadblocks and riots in Europe are more graphic, more obviously solid than meetings of finance ministers.

But the reality is that the project thunders on down the road, making progress in a sometimes haphazard way towards the goal of a single currency for Europe. As the Dublin summit showed, the fundamental political will in the rest of Europe is still there, and strikes by French and Greek lorry drivers or demonstrations in Rome will not divert it.

In Britain, the debate has moved this way and that over the course of 1996, rarely making contact with the reality of what is going on in Europe. Shadow boxing between and within the Labour and Conservative parties did little to clarify the basic issue: whether or not Britain will participate in a single currency. Both parties appeared to move further away from participation - yet neither would issue concrete statements with an election around the corner.

But there were vague stirrings this year in Britain, a sense of awakening from the prolonged sleep of the last five years. For the first time, there was an apparent recognition that something is actually happening. One index of this is the gap between what Malcolm Rifkind said in January and what he said in October. The Foreign Secretary, at the beginning of this year, was letting it be known that he thought the project to be on its last legs, and that he believed a postponement was just around the corner. By the time he made a landmark speech in Zurich in October, the angle was different. Instead, monetary union was presented as an imminent reality, albeit a risky and dangerous one.

That does not mean that the battles are over - indeed the biggest battle of all, over who takes part and who does not - is still some way down the road. But over the next year, there will be more and more signs of monetary union, taking it further off the drawing board and into the realm of the practical.

Foreign Editor

Comments