By Gamal Nkrumah It is easy to be bullish about the prospects for the new single European currency, the euro, which made its international debut on New Year's Day. The euro got off to a grand start, helped in large measure by the weakness of the American dollar. Even a parochial America, seemingly impervious to the outside world and riding high on the tidal wave of liquidity unleashed by Federal Reserve Chairman Alan Greenspan, will have to pay attention to European Monetary Union (EMU). Wall Street still dominates the global securities market, unperturbed by Russian roulette and Brazilian blackball. Doubtless it will continue to do so for some time to come. For the moment, the euro-zone has far fewer fiscal safety nets than the dollar-zone. However, many expect the euro will in time come to rival the dollar both as a safe haven currency and a medium of international transactions. A true child of the information age in which it was born, the euro only exists electronically at the moment. The new currency can be charged to a credit card or written as a check, but coins and notes will not appear until 1 January 2002. In the meantime, German marks, Dutch guilders, French francs, Italian lira, Spanish pesetas and other European currencies will continue to do duty in everyday cash transactions. The euro rate was set at 1.16675 to the dollar by the EU's finance ministers on New Year's Eve. It must not be forgotten that it was the political significance of a single European currency, rather than immediate economic or financial rewards, that brought the euro into being. The euro was primarily intended to cement Franco-German ties following German reunification. As a result, the Latin nations of southern Europe -- Italy, Spain and Portugal -- had to adopt stringent financial and fiscal measures before they were permitted to join the EMU club. Where the Maastricht Treaty failed to push forward the great unspoken project of European political unification, the euro has effectively done just that. Continent-wide social, economic and environmental union now seems inevitable. Some now hope the new streamlined economic policy imposed by euro-discipline will focus EU decision-makers' attention on the problem of unemployment, rather than their old enemy inflation. Indeed, German Chancellor Gerhard Schröder chose the eve of the new currency's launch to make a major policy speech proposing a Europe-wide jobs pact. The European Central Bank (ECB) has its headquarters in Frankfurt, Germany's financial centre. If other European nations were at something of a loss as to how to handle the new single currency, the Germans were in no panic. On New Year's Day, police in the German town of Offenbach, near Frankfurt, were already reporting cases of seasonal fire damage in euros, precise down to the last digit, using the new exchange rate set the day before. The Germans are in charge of the euro experiment, and there are still powerful German European idealists who yearn for a continent-wide superstate. Foreign Minister Joschka Fischer speaks grandly of ever closer union, and even a European Constitution. Günther Verheugen, minister for Europe, prefers more mundane subjects, such as target zones for corporation tax. But their dedication to building a new political space is the same. At this point, the sceptics are overwhelmingly British, or Anglo-Saxon at any rate. The United Kingdom is one of four EU nations not taking part in the euro's launch. Britain is currently embroiled in a row with France and Germany over the decision-making powers of euro-zone countries and the devilish question of tax harmonisation. But, with 500 international banks based in the City, the British capital seems set to remain the financial centre of Europe, and London's bankers and traders spent the weekend preparing for the momentous changes. London handles a third of all foreign currency transactions, six times more than Frankfurt. Indeed, Britain and Switzerland generate between them three-quarters of Europe's financial services. Neither is likely to be incorporated in the euro experiment in the foreseeable future. Indeed, Switzerland isn't even an EU member. Even between those EU member states which are adopting the euro in this first round, it is often the differences that are more remarkable than any overarching unity of purpose. In France and Italy, goods and services are already priced in euros, while in Spain, the new currency is keeping a decidedly low profile. Few can predict, moreover, how the European Central Bank will be able to devise a monetary policy to satisfy all 11 nations in the euro-zone. Nevertheless, the economic mood across much of the continent is upbeat. Exporters of manufactured goods are getting ready for the benefits of price transparency the single currency will bring, while financial experts anticipate huge savings in currency hedging and treasury operations. The impact on payment systems, cash registers, credit cards and electronic payments it still unclear. And in a couple of years time, even bigger changes are anticipated, as the euro on the computer screen becomes the euro in your pocket. But what about the ramifications beyond Europe's borders? In Africa, the 14 CFA franc zone member states are anxiously keeping an eye on the launch of the euro. They are worried that pegging the CFA franc to the euro, instead of the French franc, may undermine their export competitiveness. Yet they also hope that higher growth rates in Europe will boost both demand for their agricultural exports and inward capital flows. It is in Asia, however, that the euro will make its greatest mark. The continent was the first market to test the euro when trading began on Monday. Nobody seriously expects Asian governments to sell all their US treasury bond holdings and switch to the euro overnight. But the under-representation of European currencies in Asia's reserve holdings will have to be remedied sooner or later. Predictably, Asian central banks moved fast to protect their own currencies' competitiveness by intervening to ensure that they did not appreciate too rapidly over the last few days. Asia hopes that the euro's challenge to the dollar may indirectly provide a boost for their own sagging economies, especially since the continent has been dangerously dependent on the growth of the American trade gap, which is in turn contingent on the continued buoyancy of the domestic American economy. Over the weekend, regional currencies climbed against the greenback, recovering some of the ground they lost over the last 12 months. Yet, a low exchange rate against the euro remains crucial for any plans for the region to export its way back to economic health. Of the Asian nations, it is the Japanese who are the most enthusiastic about the new single European currency. Over the past six months, Japan's major corporations have already begun their own shift to the euro. According to the Japanese business daily Nikon Keixai Shimbun, trading house Mitsui is issuing over $2 billion worth of medium-term notes in euros. Sony and Nissan Motors are set to use the euro for their transactions in Europe. Major Japanese banks have already begun to offer interest-bearing euro deposit accounts for individual clients. The Bank of Tokyo-Mitsubishi is offering a rate of 0.75 per cent. Fixed-term deposits for periods as short as a month are also on offer. Meanwhile, Taiwan has switched $20 billion of its vast foreign currency reserves into the new currency. It will take a major disaster in Europe to break Asia's bullish outlook on the euro.
