Friday, 2 January 2009
Amid the global financial turmoil and recession in the Euro Area, the member countries prepare to celebrate the tenth year of the adoption of euro. When it was first introduced in 1999, the EU, albeit not with all members, realized one of the biggest dreams of the European integration process.
In general, euro can be evaluated as a major step for creating 'ever closer union' among the peoples of Europe in the sense that it does not represent a merely economic development, perhaps more than that should be evaluated as political and legal convergence. There is no doubt that the single currency contributed to the viability of the EU as a more influential political actor in the international fora. Yet, is this success adequate or satisfactory for the Europhiles? Have the expectations and hopes of the single currency supporters realized? I think it is one of the most interesting questions to concentrate on at the ‘euro@10’.
In retrospect, at the very beginning of the adoption of the single currency, many economists and politicians were very optimistic about the potential reserve role of the euro. They thought that it would become a new rival to dollar as a reserve currency and dominate the international financial transactions ultimately. The common wisdom was clear on the issue that the leadership in monetary affairs would no longer be the privilege of the United States alone. For example, Daniel Gros and Niels Thygesen were arguing that “the most visible effect of EMU at the global level will be the emergence of a second global currency.”
However, after ten years, the euro has captured a little share from the international currency pie against dollar. Today, dollar dominates approximately 65% of the international foreign exchange reserves, and it protects its incumbency advantages in most of the financial markets. More importantly, the ‘green paper’ protects its prestige and continues to be the ‘safe heaven’ for the investors all around the world. In short, almost all indicators feed the ‘dissatisfaction’ of the Europhiles.
In this context, it is of vital importance to touch upon one of the most important problems regarding the management of the euro that undermine its international key currency position: The problem of ‘single voice’ on the external representation of the ‘single currency’. If we quote Kissinger in another way “who do people call if they want to call euro?” Given that the financial crisis increased the importance of coordination and quick decision making, this question, also, turns out to be crucial from the current discussions viewpoint.
A Question of ‘Single Representation’
The Maastricht Treaty gives the exclusive right to the ECB to conduct the monetary policy within the euro area. Hence, there is no ambiguity regarding the internal representation of the euro. Moreover, the independence of the ECB that underpins the ‘single voice’ characteristic of the euro is guaranteed by the Maastricht Treaty with a strong language. The situation, however, is quite different on the external representation of the euro. Since the Euro area member states act reluctantly to pool their sovereignty at this issue-area, there remains a lack of ‘single voice’ in external monetary affairs. For example, the fifteen euro zone countries today continue to be represented individually in the IMF. The deficit on this point and the political intransigence pave the way for EMU to ‘speak with a multiplicity, even a cacophony, of voices. Hence it dissipates much of the potential for realizing a key international role.’
In order to solve the problem of “cacophony”, the Eurogroup, which is composed of the finance ministers of euro area countries, tries to take initiative. However, the Eurogroup has no legal basis and it still acts as an ad hoc institution. How this peculiar situation deteriorates the image of the EU is conveyed by Jean-Claude Juncker, the president of the Eurogroup in a relatively harsh tongue as follows:
“It is absurd for those 15 countries not to agree to have a single representation at the IMF. It makes us look absolutely ridiculous. We are regarded as buffoons on the international scene.”
Six years before, McNamara and Meunier argued that “as long as no ‘single voice’ has the political authority to speak on behalf of the euro area, as the US secretary of the Treasury does for the American currency, the pre-eminence of the US in international monetary matters, as in other realms, is likely to remain unchallenged.”
It seems that nothing much has done within the last six years regarding this point, and most probably, it would continue to be one of the most crucial problems for the euro area at least in the short time horizon.
mkutlay@usak.org.tr
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