BY CARL-ERIK ISSACSSON
STOCKHOLM, Sweden - The euro, the common currency of 11 of
the 15 member states in the European Union, came into being
January 1. The exchange rates of the participating countries'
currencies were supposedly irrevocably fixed at the start of
the new year.
In the weeks leading up to the launch of the new currency, a common interest rate was set at 3.0 percent in the participating countries.
The common currency is intended to put European capitalists in a stronger position to compete with their rivals in the United States. The "euro zone" covers an area with a Gross Domestic Product (GDP) close to that of the United States, with a population of 290 million. The U.S. dollar has been the world's dominant currency since World War I, when it replaced the British pound sterling. The dollar today accounts for 60 percent of global foreign currency reserves, almost four times as much as the European currencies combined.
The birth of the euro opens the possibility that central banks around the world will begin to shift their holdings of the main foreign currencies - with the dollar, euro, and yen competing for their share. This can increase the volatility on the world financial markets.
Japanese prime minister Keizo Obuchi traveled to Europe in early January to seek the backing of the governments of France, Germany, and Italy for the greater use of the yen as an international currency. Meanwhile, the big Japanese life insurers are moving to shift their foreign investments, 70 percent of which are now in dollars, to an even split between the dollar and the euro.
The euro has come into being at a time when the strengthening of U.S. imperialism, relative to its competitors, since the early 1980s has peaked. The spreading deflationary crisis of the capitalist world economy has increased conflicts between Washington, London, Paris, Bonn, and Tokyo.
The European rulers aren't faring so well either at this moment. Labor unit costs in Europe are higher than in the rest of the capitalist world, with the bosses so far unable to force the kind of "labor flexibility" - that is takebacks - on workers that have been carried out in the United States. The pressure to do this, in the name of lowering unemployment and keeping the euro strong, will grow.
Unemployment rates still average about 11 percent in the euro zone countries, reaching nearly 20 percent in Spain, despite an upturn in the business cycle in most countries in Europe. This unemployment is causing a social crises in Europe with no end in sight.
Contrary to the mantra that the euro will resolve the unemployment crises, the launch of the common currency will tend to increase joblessness, as governments use defending their national currency's exchange rate to the euro as a pretext for deeper austerity policies. Mergers of companies over the national borders are expected to lead to cutting tens of thousands of jobs.
Economic growth in Europe is also slowing down now, which will further accelerate competition and rivalry between the imperialist powers in Europe. One sign of the strain was the December 30 statement by Wim Duisenberg, president of the European Central Bank, that he may serve his entire eight-year term. The French government had agreed to the appointment of Duisenberg, who is Dutch, only after Duisenberg implied that he would step down after four years in favor of Bank of France governor Jean-Claude Trichet.
Of the members of the European Union, the Greek government didn't meet the criteria for participating in the euro. The governments of the United Kingdom, Denmark, and Sweden chose not to be part of the euro at a time when Europe appeared weak relative to the Washington, and the euro looked "too shaky," as the Swedish prime minister put it.
Now a debate has opened in ruling-class circles in these countries over whether to apply for membership sooner rather than later.