ECUs Everywhere, and Not a Drop to Drink

I am sitting at my desk in Deia on the Spanish island of Mallorca, transfixed by the mountain landscape because it is a financial scene every bit as much as a pastoral one. The hills have turned brilliant green under the spring rains, and the torrent across the valley is rumbling mightily down to the sea. My problem is that our town has no public water supply.

As they would say in the financial markets on which I once reported, I am awash with liquidity. But, despite the questionable efforts of the town hall and a donation from distant Brussels, water dribbles into my garden tank only when the owner of a private water system decides to turn on the tap. It is hidden behind an olive tree whose location is a trade secret.

Herein lies a cautionary tale for the statesmen of Europe and the bureaucrats in Brussels, who are running into trouble turning the grand vision of a single European currency into a reality that will jingle in people's pockets with the reliability of water from a kitchen tap. Building a financial system without the political wherewithal to manage it is like laying water pipes that run dry - and that is exactly what has happened to me.

This town, whose most famous inhabitant was the English expatriate poet Robert Graves, long masqueraded even to itself as a simple fishing village and artists' colony. Graves's obituary said he had no telephone, but he had two, both listed in the name of his wife, Beryl Pritchard, and he was visited by everyone from screen stars like Ava Gardner to famed fellow writers like Jorge Luis Borges.

Nor is Deia a poor and ignorant place. It even has its own resident anthropologist, Jacqueline Waldren, whose Oxford PhD thesis has just been published as "Insiders and Outsiders," essential reading for any Brussels bureaucrat who wants to know ancient Mediterranean ways of stiffing anyone who tries to meddle in local affairs.

Houses sell for a minimum of 200,000 ECUs (European Currency Units) - got that, Brussels? - but more often for about 1 million deutsch marks ($580,000), usually paid in cash. Arrivals from Dusseldorf confide they fear German tax authorities if they eventually convert their deutsch marks into Europe's new euro, whenever it happens. So they have learned from their French partners how to hide their money in property.

Fit for kings - but no public water

Dei, population about 550, is reputed to have the highest assets per capita in Spain. Its luxury hotel was grand enough for King Juan Carlos to entertain Emperor Akihito of Japan. It has 10 restaurants, no butcher, and, despite its wealth, no municipal water system.

For some years now, residents have agitated for the town council to buy out the private water operators. They long ago sold the rights to more water than their uncertain mountain springs can provide for all the grand new houses and hotels. One spring is so irregular it is known in the Mallorquin language as Ses Mentides (The Lies). Some years back a more reliable spring was deeded to a local bottling plant, which sells water throughout the island of Mallorca under a fetching art nouveau label.

There is also no lack of water for the hotel, owned by the English financial wizard Richard Branson, or for any house built by the local contractors, most of whom have cannily gotten themselves elected to the town council. Meanwhile, the water operators have kept raising their rates, and the council has refused to raise taxes to buy them out, lest its members get voted out of office.

Several years back, everyone thought the impasse would be resolved when huge signs announced the construction of a water and sewage system by the regional government with aid from the European Union. Streets were dug up, pipes laid, and water meters installed. No water. Then Brussels granted money to dig a well. Three sites were drilled. All dry.

I finally decided to ask the European Commission if it ever followed up on the disbursements made here from its Regional Fund.

They faxed a reply explaining the objectives of "5b/under-programme III: Diversification of the economic activity and improvement of the infrastructures." As a tourist town under "Measure 3.6, improvement of the water and sanitation system," Dei received 4.5 million pesetas (that's $31,000 or 24,500 ECUs). What this will mean in euros, perhaps the embryonic European Central Bank in Frankfurt knows. But it put me in mind of the skepticism expressed by Paul Volcker, then of the United States Federal Reserve, when this whole process started a decade ago: "I've seen an awful lot of governments without a central bank, but I've never seen a central bank without a government."

The Regional Fund is Brussels' excuse for automatic transfer programs, such as unemployment benefits and short-term welfare, that every modern government uses to equalize regional differences and serve as early-warning devices against recession. (Don't ask how the fund ended up in one of the wealthiest villages in Spain, but it surely didn't hurt that Narcis Serra, then Spain's deputy prime minister, used to summer here.)

But when money leaves Brussels, it's gone, and no one knows where. The spokesman's statement warned in boldface: "The commission approves operational programs but not individual projects."

Did anyone in Spain have to account to Brussels? Does Brussels have a system to audit the books and find out what happened to its money when it got to Spain? I called and asked. We'll look into that and call you back, they said. No one did.

I told this little tale at a grand conference on the euro held in New York by the European Institute. Peter Fisher, the chief trader at the Federal Reserve Bank of New York, warned that the euro wouldn't be real money until it could boast "liquidity in the markets." There's that word again. My mind feasted on the idea of water finally flowing through the pipes of our new system that Brussels helped build here. Mr. Fisher meant that, for euros to become real money, bonds would have to be denominated in euros; banks and brokers would have to trade them; and ordinary investors would have to be willing to pay for them from their own pockets.

Burying money in Spanish castles

For that to happen, Germans would have to trust the euro enough not to bury their own hard currency in vacation castles in Spain. The French would have to trust their own governments and Brussels to be responsive to their own needs, as French voters have just demonstrated they do not when it comes to choosing between them and the euro.

And all member governments of the European Union will have to be able to give a better accounting of their own activities than Brussels, Madrid, and my town council have done in their miserable efforts to help turn liquidity into water in the tank in my garden.

* Lawrence Malkin, former European correspondent for Time and chief US correspondent for the International Herald Tribune, is an author who divides his time between New York and Deia, Spain.