Should we hail the momentous decision by eleven European nations to opt for a single currency as a sign of vanishing frontiers, and should we greet the euro they produced as the rival of the dollar, symbolically heralding some limitation on the imperial strength of the world’s only superpower? Or, on the contrary, do the Brussels celebrations launching Europe’s E.M.U. (the Economic and Monetary Union) announce the opposite: the spread of the American model at its worst to the whole of the Western world?

Such conflicting questions can be raised because we are dealing with something unprecedented. This is no minor experiment. The eleven, on their own, have a population of 290 million and a gross domestic product roughly 10 percent less than that of the United States. Never has an attempt been made on the same scale to transfer monetary policy to a supranational central bank. The logic of such a move points toward political unity, some form of confederation. Hence the talk of Euroland (sounding suspiciously like Disneyland) standing up to the United States.

But a construction built from above and having a bank as its foundation is unlikely to produce a pattern radically different from the American one. Either the Europeans will have toiled and tightened their belts to erect a structure unable to stand up to inner tensions and foreign pressure, or they will have built an unwanted imitation of the U.S. model.

However, there is a third possibility. A monetary scheme imposed from above may provoke popular resistance. For the past few years, the international financial establishment has inspired an offensive against Europe’s welfare state. Now, under the banner of "flexibility," the main attack is to be against wages. Like the French, who rebelied in 1995 against the first offensive, the rest of Europe may rise up in defense. Indeed the working people and their unions may grasp that, in the new context, they do not have to give up the struggle but have to expand it beyond national frontiers. To the bourgeois Europe of bankers and bureaucrats, they could oppose a Europe from below that defends the interests of the people and not those of big business.

Let us not anticipate. All that was decided at the inaugural meeting in Brussels was the admission of eleven members to the new monetary union, the unofficial rate at which they will exchange their currencies into the euro and, after a showdown between Paris and Bonn, the appointment of Germany’s favorite Dutchman, Wim Duisenberg, as the first head of the European Central Bank, nominally for eight years, but with the promise to hand over the presidency in 2002 to his French successor-only that, and the timetable. By next January the banks, bourses and businesses will start their transition to the euro, while ordinary people will begin to learn the conversion tables. By January 1, 2002, the latter will finally begin using euros and cents, and within six months marks, francs and lire will be driven out of circulation. By then the European Union will have had to alter its institutions to admit newcomers from Eastern Europe. Thus, in the next four years there should be plenty of room for maneuver. The purpose of the notes that follow is to throw some light on this historical venture into uncharted territory.


Monetary Momentum


The euro is only a stage in Europe’s integration, which began forty years ago with the six original members of the Common Market, which was designed to keep the Federal Republic of Germany within the Western orbit and to stand up to the Soviet Union. It prospered during the "golden age of capitalism," and marked time thereafter. Over the years it gathered nine new members, including Britain, losing in cohesion what it gained in numbers. Integration got a new impetus in the late eighties through massive deregulation, which was part of the search for a single market. The Maastricht Treaty, signed at the beginning of 1992, was to crown this edifice with a monetary union. The single currency was also aimed, once again, at keeping Germany tied to the West, this time after the fall of the Berlin wall and reunification.

Admission to the E.M.U. finally proved less difficult than had been assumed. Not that the would-be members did not pay a hell of a price. The so-called Maastricht criteria-on price or currency stability and public deficit-were used as a pretext for a tough deflationary policy throughout the region, as part of the already mentioned attack on social benefits. Ultimate acceptance was, in the end, easier than expected because by 1997 the continental economies had emerged from depression, and the one test that could have barred many countries, notably Italy and Belgiumthe limitation of accumulated public debt to 60 percent of G.D.P.-was interpreted very loosely. Thus, nobody was rejected: The eleven are in, and Greece has been promised membership at the start of the new millennium, while Britain, Sweden and Denmark have chosen to stay out for now.

If the people have paid the price in living standards and the European idea has suffered because it is now associated in the popular mind with the public-spending squeeze, the new monetary authorities emerged from this slimming cure in a very comfortable position. Incidentally, Europe’s Central Bank, with its headquarters in Frankfurt, will be less constrained in its monetary activity than is Germany’s Bundesbank or the U.S. Federal Reserve. Wim Duisenberg, his French deputy and four other members will constitute the executive board; these six, along with the eleven heads of national banks, will form a governing council, and neither board will have a real political counterpart. True, the French have managed to set up a Euro-1, where ministers of finance will meet regularly to discuss matters of common interest. But the Germans, whose voice has been decisive throughout the preparations, made it quite plain that this was not even the embryo of a European government.

Unhindered, the Frankfurt bankers will have plentiful funds at their disposal. The eleven were heavy foreign traders, but the bulk of their trade, carried in euros, will now be "domestic."Trade with outsiders will account for about 10 percent of the domestic product, roughly the same share as in the United States or Japan. With their foreign trade thus curtailed, the countries of Western Europe will no longer need a good proportion of their currency reserves, now held mostly in dollars. Should they throw them suddenly on the market while other countries shift partly to the euro, the dollar could be in trouble.

Yet the real problem is the long-term impact. Nobody can say whether the Frankfurt bankers will favor a strong euro (recommended by the Germans) or a weak one that is good for exports (advocated by the French); probably the former. Some facts, on the other hand, are certain. The eleven can be compared with the United States in terms of output or value of foreign trade; actually, they show a big surplus, contrasting with America’s even bigger deficit. But the role both play in the world’s finances is very different. The dollar accounts for about half the world’s foreign transactions and nearly 63 percent of world currency reserves. Its privileged position can be summed up simply: The United States is the only country that can extricate itself from a foreign payments crisis by printing its own money. If the euro were to match the dollar as a means of exchange and as a favored reserve currency, that privilege would be more than threatened. The question is whether the advent of the euro heralds the end of the half-century of undisputed U.S. domination, first of the Western, then of the whole world.


Political Dwarf?


hat used to be said of Germany can be said of the European Union, with the same degree of accuracy and exaggeration: that it is an economic giant and a political dwarf. Europe, while no midget, does not carry a political weight corresponding to its economic stature. The recent Iraq crisis is a good illustration. Washington, spoiling for a fight yet not determined to have it at all costs, was forced to alter its scenario. It was not the European Union that was responsible for this shift but France, which, with its clever matchmaking, was helped by Russia and China. This episode actually revealed the divisions within the European Union. Whether old Tory or New Labor, Britain acts as America’s poodle, and Germany, when driven to choose between Paris and Washington, still picks the latter, even after the fall of the US.S.R. Nor was the Iraqi affair the only recent example of European weakness. In the Middle Eastern predicament and in Asia’s financial crisis, Europe, despite the depth of its interests, has played second fiddle, at best.

True, when its economic interests are attacked directly by a United States proclaiming its whims as international law-imposing sanctions on foreign companies dealing with Cuba or investing in Iran and the Caspian region-the European Union does resist. Even then it prefers compromise to confrontation. In other cases, it’s not clear where the lines of conflict lie. Originally, during the cold war, Washington was very much in favor of European integration. It is still paying the idea lip service, though it would obviously prefer a loose free-trade area to a tightly knit confederation. And the United States has many companions on the European side. Sir Leon Brittan, the British trade commissioner in Brussels, is defying French wrath and a threatened veto in pushing for a "new transatlantic marketplace"-a free-trade area between the United States and Europe. And he is far from isolated.

There is no systematic effort to set up E.U. corporations in the current process of economic concentration either. With the coming of the euro, mergers have multiplied both within and across national frontiers, in finance even more than in industry. The takeover of A.G.F., France’s second-largest insurance group, by Germany’s Allianz is a striking example. The concentration, however, is not all confined to the European Union. True, to face the American giants, E.U. governments have managed to induce the civilian side of the aerospace industry to pool its resources (producing Airbus), and they now are trying awkwardly to streamline the military branch. But they have given up the idea of doing something similar in computers, electronics, airlines or telecommunications. The future of the euro is uncertain, because if it is to consolidate, it needs not just a central bank but some form of state power in Brussels. The monetary union has no unifier andas management in Europe becomes increasingly "Anglo-Saxon" under the influence of U.S. mutual funds-no alternative project to defend. There is no will and no reason why. Political entities are not built, any more than empires are acquired, in a fit of absent-mindedness.


Internationalism Thrust Upon Them


t may be objected that with the Olive Tree coalition in office in Italy, New Labor in Britain, the "plural left" in France and Gerhard Schroder on the German horizon, Europe is perfectly poised to challenge the US. model with a social democratic alternative. One anecdote will show the naivete of this conception. Last November, employers and unions were negotiating within the E.U. framework about the representation of employees in the boardrooms of their companies. British managers, hating the idea, appealed to Tony Blair for help. The Labor Prime Minister turned to conservative Chancellor Helmut Kohl, who asked German employers for assistance. They duly boycotted the talks and the project was shelved. It took some time for the German unions to discover the plot and to report it to their British colleagues. Last month the matter was revealed in London, stirring a small scandal, though not much surprise.

This small incident confirms that you cannot bank on the leaders of Europe’s center-left, acting on their own, to provide policies that move beyond the consensus. The only possible exception is French Prime Minister Lionel Jospin-if you stick to what he says rather than what he does. He said he would not accept the so-called stability pact, which would preserve Europe’s deflationary straitjacket forever, and then did just that when he came into office. Still, Jospin can claim that he is seeking expansionary policies and that he’s refusing to slash unemployment by cutting wages. He can also plead that he cannot do it alone. French exceptionalism is primarily the byproduct of the mass movement that shook France at the end of 1995 and without which the plural left would not now be in office. Indeed, the only way in which Italy’s Romano Prodi or Blair or Schroder can be budged from their consensual position is by powerful pressure from below. The hopeful note is that the French example could be spreading.

The inauguration of the monetary club does not mean the end of belt-tightening, even if European production grows, as forecast, by nearly 3 percent this year and next. The authorities are determined to proceed with the dismantling of the welfare state, while putting a new emphasis on the drastic reduction of labor costs. This strategy is openly proclaimed by central bankers, business editors and international technocrats. In its "Economic Outlook," published in April, the Organization for Economic Cooperation and Development warns governments against "benefit generosity." It urges them to "risk antagonizing insider groups" (read: labor unions) "by relaxing minimum wage requirements, allowing for a wider dispersion of wages and easing employment protection." In the new context, employers will be in a stronger position to do these things. Before, when a European country was in serious trouble, it could devalue. Now it has no control over monetary measures and limited control over fiscal policy because of the stability pact. The regions in difficulty will be in a worse position than their U.S. equivalents because the E.U., with a budget amounting to less than 1.3 percent of G.D.P., can hardly come to the rescue. This is the framework within which it is planning to reshape the labor market, stripping workers of their protection and forcing them to migrate to seek jobs across frontiers.

Capital has always been favored over labor in the building of Europe, but things have now reached a breaking point. If the labor unions want to survive, they must first mobilize on a national scale the fully employed, the part-time workers and the jobless for common action. Then, going further than the French did, they must move beyond national frontiers with concrete proposals. They must elaborate a common program involving minimum wages, reduced working hours, social benefits and safeguards. In outlining how these can be implemented, they will have to draw up a vision of society that differs radically from the American model.

Can the labor movement measure up to its task? All that can be said is that it has little time to spare. The spread of the xenophobic poison in France, and now in Germany after the recent elections in Saxony-Anhalt, is a reminder that dark forces are waiting to exploit popular discontent. With Asians beginning to discover the sinister significance of an economic crisis and Western stock exchanges hovering at dizzying heights in an obvious bubble, the euro is venturing into an uncertain future. We must pin our hopes on movements from below and prepare for the worst.