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| Andrew Watt is managing editor of Transfer*, the quarterly journal of the European Trade Union Institute, the research arm of the European Trade Union Confederation (ETUC), and a researcher in the fields of European employment and economic policy. In the following article he analyses the real meaning of the introduction of the euro notes and coins. |  |
For months I had been walking past a revolving electronic clock,
situated just outside the Brussels headquarters of the ETUC, that has
been inexorably counting down the seconds. As champagne corks flew to
usher in the New Year 2002, the figures finally said '0 days, 0
hours, 0 minutes and 0 seconds to the arrival of euro notes and
coins'. 'In the following days people in 12 European countries
struggled with converters, unfamiliar change and longer queues. The
media were full of reports of the momentous occasion. Everything, it
seemed, had changed. Two months later 12 national currencies, some of
them with a centuries-long history, ceased to be legal tender. Yet it
seemed that nothing had changed.
It is not hard to see why the introduction of euro notes and coins was both momentous and of only transitory significance. For the fact is that the euro has been with us since the start of 1999, when the exchange rates of the euro-zone currencies were irrevocably fixed in European Monetary Union (EMU) the prices of goods, services and capital could no longer vary between the countries by virtue of unfathomable shifts on foreign exchange markets. Consumers and investors could already compare the cost of labour, consumer goods etc., in a long-term perspective, the only effort required being to punch two numbers into a calculator. Thus prices did not suddenly become transparent across Europe on 1 January. Moreover, the impact of the euro must not be confused with that of more fundamental trends, such as financial market integration.
A new regime
What changed on 1 January was the yardstick applied to money, like measuring petrol in litres rather than gallons: it was not a change in the quality of the fuel. That had occurred as part of the process throughout the 1990s to bring about European monetary union. The change in yardstick affected the everyday lives of everyone in the eurozone, but only at a very superficial level, which is why the excitement died down so suddenly.
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So what are the implications of the more fundamental changes? Most obviously, national central banks have been replaced by the European Central Bank (ECB). Critics have claimed that this implies loss of monetary autonomy, and thus in some sense of 'sovereignty'. Yet the real meaning of 'monetary sovereignty' might well be that 'you have to worry about your exchange-rate'. The euro zone, which exports less than 10% of what it produces, can be much more relaxed on this issue. Moreover, it must be recognised that national central banks were previously tightly constrained by the policies pursued by the German Bundesbank, which set monetary policy according to perceived national interests. What it does mean is that those urging growth and employment-friendly monetary policies, including trade unions, must target their efforts towards the ECB. The ETUC is seeking to coordinate such efforts, in bilateral meetings with the ECB and within the framework of the Macroeconomic Dialogue, involving also the employers' representatives, the Commission and Council. It is important to note that the workings of the EMU monetary regime are not set in stone. The ETUC is campaigning for changes, such as a symmetrical monetary target, i.e. an upper and a lower limit on inflation, which would bring the ECB closer in line with the world's leading central banks. The common monetary policy, in turn, implies the need to coordinate the two other areas that affect the macro economy: fiscal policy (tax and government spending) and wages policy. The Maastricht convergence criteria, which countries adopted to get themselves into the euro club, meant a sustained cutting of budgets in many European countries during the 1990s, and gave policy convergence a bad name, particularly in union circles. |
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The countdown clock close to ETUC headquarters in Brussels |
But now that national budgets are more or less in balance, it is important to focus on the advantages of coordination, preventing harmful tax competition and making sure that governments respond, positively to external economic developments. If national fiscal policies can be coordinated, they will be more, not less effective than before EMU. On wages, the comparability of labour costs often ascribed to the euro is in fact the result of the mobility of capital. Here, the ETUC sees EMU as a chance to make progress towards greater coordination of wage bargaining. ETUC recommendations on wage settlements, that seek to match real-wage to productivity growth would put a stop to the inexorable decline in wages as a share of national income that we have seen over the past twenty years, while enabling lower-income, but high productivity-growth, regions and sectors to catch up.
EMU is far from perfect. The drawing board on which it was established certainly reflects the prevailing concerns and ideologies of the early 1990s. But it has performed well so far, and the debate is moving on, not only within the European labour movement, on how reforms can make it more relevant and beneficial to the concerns of working people. The successful introduction of notes and coins was important politically. But those deciding whether or not to join EMU should do so on the basis of the fundamentals of the regime, the prospects for progressive reforms, and a realistic view of the inherent constraints on national sovereignty in an interdependent world.
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*The web site for Transfer is at: |
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