Battle Set Over Who Will Be Europe's Greenspan
Step forward, Europe's Alan Greenspan.Skip to next paragraph
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As the 15-nation European Union (EU) moves closer to forging a single currency - and a potentially strong counterweight to the American dollar - a battle has erupted over who will be head what may become a powerful global institution, the European Central Bank.
Most EU members favor a Dutchman, Wim Duisenberg, former head of the Dutch Central Bank. But France surprised many by pushing its own candidate, Jean-Claude Trichet, governor of the Bank of France.
Both men have strong credentials as inflation fighters, even at the cost of high interest rates and unemployment. So the choice may not make much difference to the average European.
"I don't think that monetary union depends on the name of the person who will run the central bank," comments French Finance Minister Dominique Strauss-Kahn.
Indeed, almost all observers now agree that the euro, as the single currency is known, will become a reality on Jan. 1, 1999. Over the past year, EU member states have gotten their budgets in order, and a budding continental recovery means that even long deficit-ridden Italy should meet the currency's strict requirements.
In May next year, Europe's leaders will convene a summit in Brussels to select the new central bank president and the countries that will participate in the currency adventure.
"The single currency will become a reality," asserts Peter Ludlow, director of the Center for European Policy Studies in Brussels.
European companies have gone past the point of no return in preparing for the euro, and Mr. Ludlow says the "costs of failure" would be enormous: "prolonged periods of uncertainty in the money markets, accompanied by a rise in interest rates that would choke recovery and exacerbate unemployment."
But the battle over who will be Europe's first central bank president underlines many of the remaining uncertainties surrounding the euro, such as:
* Which countries will participate in the single currency adventure? Germany wants a small core group of north European nations, which tend to keep their budgets balanced. France wants to let in the "Club Med" countries - Italy, Spain, and Portugal - which border the Mediterranean.
* Will the euro be a strong or weak currency? Germany wants it to be as rock-hard as its own currency, the mark. France, however, has long pushed for looser government spending to combat unemployment.
* Perhaps most important, will Europe use its euro to attack American economic power? "The world is today dominated by the US dollar, which is used for 50 percent of commercial transactions and 80 percent of operations on financial markets," comments Yves-Thibault de Silguy, the European Commissioner Responsible for Monetary Union.
"Europe is the world's No. 1 economic and commercial power, but has no presence on the international monetary scene," he says. "The arrival of the euro will correct this paradox, opening the way to a more balanced multipolar international monetary system." This, Europeans hope, means America no longer can dictate economic policy to the rest of the world.
First, though, Europe must navigate the bumpy road toward its single currency. In this latest in a recent series of confrontations with Germany, French officials maintain that since the new bank will be based in Frankfurt, Germany, it is only fitting that a Frenchman be allowed run it.
The French attitude infuriates Europe's smaller countries. In recent years, the French have blocked Dutch candidates to head the International Monetary Fund and the European Bank for Reconstruction and Development, which finances development in Eastern Europe.
The irony is that the two potential European Greenspans have much in common. Mr. Trichet is a career civil servant, appointed governor of the Bank of France in 1993. A proponent of a strong-franc policy, he has fought inflation while resisting pressure to devalue the franc and cut interest rates. Not least, he is a fanatical supporter of a single EU currency.
Mr. Duisenberg spent 15 years at the helm of the Dutch National Bank, which he left this past June to head the Frankfurt-based European Monetary Institute, the European Central Bank's precursor. During his tenure as Dutch central bank governor, Duisenberg pegged the guilder to the rock-solid German mark. "When it comes to hard-line monetarism, there's no one harder than Duisenberg," says Nico Kleine, an economist at ABN AMRO Bank in Amsterdam.
In the end, diplomats say France's bid to put forward a Frenchman is unlikely to succeed. But French pressure may well ensure that Duisenberg is also denied the job. A compromise candidate may be needed.
Several alternatives already have been put forward, including Hans Tietmeyer, president of the German Central Bank, and Belgian Finance Minister Philippe Maystadt.