Still, the week had been fun while it lasted; partly because nobody knew quite what the birth of the euro meant. ““It’s an exciting moment,’’ said Michael Mandelbaum of the Johns Hopkins University’s School of Advanced International Studies, ““but we really don’t know how it’s going to turn out.’’ Confusion, indeed, was the order of the day. In Washington, administration officials welcomed the new currency, as they always have done when asked. They didn’t get much thanks; in an interview with Le Monde, French Prime Minister Lionel Jospin pointedly said that one of the virtues of the euro was that it enabled Europe to ““escape the domination of the dollar.’’ At the weekend, the old greenback seemed to be collecting enemies; on a visit to Paris, Japanese Prime Minister Keizo Obuchi reportedly told French leaders that the ““dollar-oriented world needs to change.’’ And the governor of the Cuban central bank welcomed the euro because it would ““undermine the dollar’s hegemony, for the good of mankind.''
In truth, it’s just too early to say what the euro means for the dollar. At present, more than half of all world trade is denominated in dollars, though the United States accounts for only about a quarter of world output. Nobody doubts that, in time, a substantial chunk of trade will be done in euros, or that central banks around the world will convert some of their holdings from dollars to the new currency. A reduced demand for dollars, in one view, would make it less easy for the United States to finance its trade deficit; that, in turn, might require higher American interest rates in order to win back foreign demand for dollars. On the other hand, when the American economy posts the numbers that it showed last week–the lowest unemployment rate for 40 years, combined with extraordinarily low inflation–it looks strong enough to win the support of investors the world over.
The dollar’s strength or weakness, in fact, is not a decent indication of America’s international influence; other matters, like the size of its military power, matter just as much. Ask the Poles, Czechs and Hungarians. The euro, remember, is a currency used by 11 West European members of the European Union. It was conceived as a direct response to the events of 1989, Europe’s year of miracles, when the Soviet empire east of the Iron Curtain collapsed. Between 1989 and 1993 a complicated grand bargain was struck: Germany would be unified but, to show that it was a good European, would give up its beloved Deutsche mark; Washington would not rub Moscow’s nose in its own failure, and the ex-communist nations of East and Central Europe would be granted a double security blanket–a promise of early membership in the EU, and military protection by the United States through membership in NATO.
Hence the events of this spring, when Poland, Hungary and the Czech Republic will become full members of the North Atlantic alliance. The oddity is that the timetable for their membership in the EU has slipped. When Helmut Kohl lost the German election last fall, the nations to Germany’s east lost their greatest European champion. Gerhard Schroder, Kohl’s successor as German chancellor, is anxious to reduce his nation’s contribution to the EU’s budget; unless a deal on that is done soon, he has said, the ex-communist countries will have to wait a while for EU membership. On a visit to Paris last week, Polish Foreign Minister Bronislaw Geremek tartly said, ““We are ready to become members of the European Union in 2002 or 2003. The problem is whether the EU is ready.''
In Central Europe, there is still reluctance to judge Schroder too harshly. ““I don’t want to send out the wrong signals,’’ says Michael Zantovsky, the chairman of the Czech Senate’s foreign-relations committee. ““Schroder will have to show if he will follow in [Kohl’s] footsteps.’’ But if the German government means what it says, Europe will soon look an odd place. To the west of the old Iron Curtain will be Euroland, rich and self-confident; to the east of it will be countries who will be members of NATO, but not the EU–who will look not to Paris, London or Berlin for their security, but Washington.
In good times, when all of Europe is quaffing champagne on a Monday morning and the Dow is reaching new highs, none of this matters much. In bad times–ever noticed the state of the large country to the east of Poland?–it will. Whatever the value of the dollar.
