Euro currency turns 10; seen fulfilling promise
Arizona Coin Collector
http://www.google.com/hostednews/ap/article/ALeqM5gHKlZEE2qXsG4MkdiCCGc5RYeFNAD95BNE980
Euro currency turns 10; seen fulfilling promise
By MATT MOORE and GEORGE FREY - 1 hour ago
FRANKFURT, Germany (AP) - Ten years ago, Europe launched
its grand experiment with a shared currency - and watched
it plunge so far it needed a bailout from central banks.
But as the anniversary approaches of the Jan. 1, 1999,
arrival of the euro, economists say the new currency is
finally fulfilling its promise as a way to lower
borrowing costs, ease trade and tourism, boost growth
and strengthen the European community.
And doing it amid a global financial crisis that, for
the moment, underlines the safety in numbers that comes
from joining one, big currency.
"After 10 years it has truly created a zone of security
and stability," French Finance Minister Christine
Lagarde said in mid-December. "From all these points of
view, the euro has in fact proven wrong the forecasts
some made against the euro 10 years ago."
When it was launched for non-cash purposes in 1999,
just 11 countries were on board - Austria, Belgium,
Finland, France, Germany, Ireland, Italy, Luxembourg,
the Netherlands, Portugal and Spain. Notes and coins
were added on Jan. 1, 2002, and the original 11 have
been joined by Cyprus, Greece, Malta and Slovenia, with
Slovakia slated to join on Jan. 1, bringing the total
to 16. Now, some people in longtime holdouts such as
Sweden and even strongly euro-skeptic Britain are
beginning to reconsider the question.
Smaller countries that went it alone, such as Iceland,
or that haven't met the requirements to join yet,
such as Hungary, have seen their currencies collapse
in value and been forced to ask the International
Monetary Fund for bailouts.
Otmar Issing, a former board member of the European
Central Bank, said the euro's appeal has been its
ability to provide a sense of stability and shelter
from the storm of global crises. The bank, created
specifically to oversee the euro, has taken a strong
anti-inflationary stance that mirrors that of its
chief predecessor, Germany's Bundesbank central bank.
"The euro is a stable currency, inflation
expectations were under control right from the start,"
Issing told The Associated Press.
"Not surprisingly, quite a few observers - with
probably the majority of economists to the fore - were
more than skeptical as to the outcome of this
experiment," he said.
The chief complaints from governments during the
euro's first 10 years have arisen from the bank's
one-size-fits-all interest rate policy - which can't
give rate cuts to individual countries if their
economy dips while others rise. But the credit crisis
has swept over the global economy due to heavy bank
losses on securities backed by U.S. mortgages to
people with shaky credit has hit everyone at pretty
much same time.
That has helped people forget the euro's early plunge,
from around $1.18 at launch to only 82 cents by
October 2000. The European Central Bank and the
Federal Reserve had to intervene in currency markets
to prop it up.
Howard Archer, an economist with IHS Global Insight
in London, said "Obviously in the early days, the
euro was weaker and there was some worry about its
values."
But since then, the euro has soared in strength and
value, rising to as high as US$1.6038 against the
dollar this year. It's down to around $1.40, but has
risen strongly against the British pound.
Randall Filer, a visiting professor of economics at
Charles University in Prague and Hunter College in
New York, said the requirement to cut government
debt before joining gave political leaders the
backbone to make economic reforms but place the
blame on EU requirements.
"It has enabled governments to embark on the labor
market and fiscal reforms that were absolutely
necessary," said Filer. "The euro became "a convenient
scapegoat" that enabled reforms that were needed but
Europe "did not have the political will to do."
The euro spread the ECB's tough anti-inflationary
stance to countries that didn't previously have it,
said Bocconi economist Franco Bruni at Italy's
Bocconi University. "It gave us a monetary policy
that we wouldn't have been capable of doing." Bruni
said, adding that when Italy had the lira, the
country had a greater tendency toward inflation and
interests rates were higher.
"We entered in the euro area, we had integrated
finances with other foreign countries, which made
it easier to invest abroad," he said. "Italian
banks can operate on a wider scale, and we could
buy shares abroad more easily."
Some 15 million new jobs in the last six years
have been created by making trade and travel easier
through a single market. That has also invited
more foreign investment, too. With the inclusion
of Slovakia, the euro will be used by about 330
million people with a gross domestic product of
more than euro4 trillion ($5.5 trillion).
Euro countries now enjoy a bigger and more efficient
bond market with less risk of currency devaluations
and inflation.
Newer EU members such as Poland, the Czech Republic
and the Baltic countries Latvia, Lithuania and
Estonia are in the process of meeting the conditions
of joining the euro zone, but the crisis has put
their hopes off for now.
Pro-euro sentiment has risen in euro holdout Sweden,
whose weaker krona has helped supporters in their
arguments, said economist Lars Calmfors.
He also said EU-leaders' swift response in agreeing
to pour billions of new capital and loan guarantees
in their financial systems boosted confidence in
the euro. "It demonstrates that if you stay outside,
you are not present at the table when the decisions
are taken," he said.
AP Business Writers Greg Keller and Emma Vandore
in Paris, Jane Wardell and Emily Flynn Vencat in
London, Colleen Barry in Milan and Louise
Nordstrom in Stockholm contributed to this report.
..