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STRATFOR.com
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THE INTERNET SOURCE FOR GLOBAL INTELLIGENCE
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Euro's Biggest Test Still Ahead
January 8, 2002
Summary
The launch of the euro, though widely praised as a watershed for economic integration, will do little to change underlying conflicts inherent to the European monetary union. The real test will come when Europe faces recession and competing priorities threaten to boil over into disputes over economic sovereignty. The euro will suffer on global markets so long as such political risks remain.
A man holds the new euro banknotes in front of a cash dispenser in Duesseldorf, Germany, on Tuesday, Jan. 1, 2002. (CNN’s Euro note & coin gallery)
Photo Credit: The Associated Press
Analysis
Euro notes and coins hit the streets Jan. 1 without any severe hitches, and the currency received a much-needed boost against the dollar, pound and yen on Jan. 2, the first day of trading. These gains slowed or reversed slightly on Jan. 3 as "europhoria" seemed to begin subsiding.
The physical introduction of the currency -- much hyped as "the largest peacetime logistical exercise in history" -- was in truth but a small hurdle in the drive toward economic union. The true test will come when Europe faces a prolonged recession. When it does, whether in 2002 or years from now, the euro and the institutions that support it will inevitably come under attack by national political forces preaching a return to economic sovereignty. So long as Europe's economic union outpaces its political union, uncertainty over the euro's future will continue to lurk just below the surface.
This uncertainty will create a drag on the eurozone economy and ensure that the U.S. dollar remains the dominant currency for international transactions and financial safekeeping.
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(c) 2002 Stratfor, Inc.
Dan
Euro's Biggest Test Still Ahead . . .