Mixed Blessing for American Economy
WASHINGTON — Europe will form "a more perfect union" - sounds like something Americans would instinctively applaud.
But the United States has reason to feel torn about the plan by 11 European nations in January to scrap their currencies, bow to a new central European bank, and launch the euro, a common bank note.
The euro could emerge as a rival to the dollar as a "reserve currency" held by central banks. Weaker demand for dollars and dollar-denominated assets means higher interest rates. And higher rates weigh down economic growth and, usually, stock prices.
And the US defense industry has already felt a blow from European integration. European governments have slashed defense spending to meet budget-deficit targets required by the common-currency treaty.
But monetary union has payoffs for America. "It will be much easier, efficient, and predictable for US companies to deal with just one exchange rate instead of 11," says Leila Heckman, a Salomon Smith Barney analyst.
A unified market will speed efforts by competitive US companies to expand market share in Europe.
And many analysts doubt the euro will upstage the greenback anytime soon."Financial markets will ... wait and see," says Paolo Presenti, a Princeton University economist. "So they will probably stay with the pound or dollar as a financial haven."