Commentary No. 7, Jan. 1, 1999
"The Euro"
Jan. 1, 1999 marks the inauguration of the Euro, the new common currency of 11 countries in the European Union. Is that important, and who will benefit? For Europeans, or at least for western Europeans, it marks a giant step in the direction of restoring Europe to a central role in geopolitical decision-making, a centrality it had lost in 1945. The big loser is the United States. Does it matter for East Asia? Does it matter for the South? Does it matter for the world-system as a whole?
First, for Europeans themselves: It is clear that the economic benefits internal to the European Union are considerable, and this of course was the primary motivation and justification for creating the new currency. It will lead to larger, more efficient markets for European goods, both within Europe and in the rest of the world. It will therefore help Europe maintain and improve employment in the present difficult global market.
The agreement on establishing the euro was a political compromise. There was considerable reluctance in the early 1990's about the idea, especially in Germany, the strongest economic zone within Europe. Germans feared that they would somehow be "dragged down" by what they thought of as the economically weaker European states in southern Europe (Italy, Spain, Portugal) but also Belgium. They therefore demanded a price, which took two main forms: a series of requirements of eligibility to enter the common currency, which essentially called for reduced governmental expenditures in these "weaker" countries; and a strong, independent European central bank, which would be in the hands of conservative neoclassical bankers. Both demands were accepted, amidst great protests by persons on the left that this involved selling out the European welfare state to Thatcherite/IMF ideologues. Many of the more conservative supporters of the prospective euro were sure that the "weaker" European countries could not meet the stiff conditions. And Great Britain, Denmark, and Sweden decided not to enter the euro yet.
The great surprise of the last two years was that all the "weaker" countries met the conditions, helped by the financial upsurge of the last few years. And that Germany itself was one of those who had most difficulty, in large part because Germany herself, even under a Christian-Democratic government, was not willing to reduce significantly the welfare state. Just six months ago, with the appointment of the head of the European central bank, there was a serious discord between the French and German governments, partly revolving around nationalist pride but partly the result of a debate about the degree of "independence" of the central bank. A compromise was achieved. Shortly thereafter, however, the Social-Democrats won the German elections, and the German government position was no longer the same on the degree to which this central bank would be "independent."
As we know, central banks throughout the OECD states have achieved considerable autonomy from their governments. But this is in the context of there being a government that could balance what the central bank did with other kinds of economic measures within its powers. At the moment, there is no central European executive that has economic powers to balance the European central bank, which makes the latter's power greater vis-a-vis the European Union than any national central bank vis-a-vis its government. It is clear that this is not viable, and it must lead in a very short time to establishing some kind of executive structure which can play a Europe-wide economic role. The fears of left skeptics about the euro seem to have been overstated. So were the fears of right skeptics.
In the meantime, the United States dollar is about to lose its cherished role as uncontested reserve currency in world finance. In the next ten years, the euro will probably be as much used as the dollar. And once this happens, states and enterprises will feel freer to use the yen. Thus, the so-called triad will become not merely a reality in the world of production but in the world of finance. Great Britain will probably hasten to join the euro in the next two years, and Denmark and Sweden will follow. Others will ask to come in.
As Europe moves to strengthen its political machinery, it will surely move towards the establishment of a European army, and this will further weaken the political role of the United States in the world-system. We can expect a significant increase in political discord between the U.S. and western Europe in the first decade of the twenty-first century.
Does any of this matter for East Asia? Of course it does. On the one hand, it opens up East Asia's relations with the United States and enables East Asian countries to be less dependent. But it also creates a serious economic rival to East Asia's productive activities in a renewed Europe. In the back-and-forth of the next decade or two, this creates uncertainties. In the longer term of the rise of East Asia, the creation of the euro should not however be a too significant factor, for the structural factors underlying East Asia's rise will rermain unchanged.
And for the South? It all depends on which South we mean. There are the so-called APC countries, those which once were colonies of European states. They, for the most part, have stronger economic ties with western Europe than with other OECD countries, and still receive some benefits (aid, lower tariffs) from this linkage. They should see therefore some slight benefit from the euro because of its impact on western Europe's economic health. But the fact is that the benefits they have been receiving from these links with the former colonizers have been rather small, and increasing them slightly will probably not make too much difference.
When all is said and done, the euro signals a shift in geopolitics, the definitive turning-point out of a U.S.-dominated
world-system to a polycentric one albeit one in which the polarization of North and South remains unchanged.
Immanuel Wallerstein
[Copyright by Immanuel Wallerstein. All rights reserved. Permission is granted to download, forward electronically or e-mail to others and to post this text on non-commercial community Internet sites, provided the essay remains intact and the copyright note is displayed. To translate this text, publish it in printed and/or other forms, including commercial Internet sites and excerpts, contact the author at iwaller@binghamton.edu; fax: 1-607-777-4315.
These commentaries, published twice monthly, are intended to be reflections on the contemporary world scene, as seen
from the perspective not of the immediate headlines but of the long term.]
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