Europe's Great Leap of Faith

The New York Times

The euro, the most audacious gamble in the history of currency, has become a
reality. What will this crucial step toward unity mean for Europe, the United
States and the world? The New York Times Op-Ed page asked several experts in economics and observers of European
culture to offer their insights.

Robert B. Reich:

Left-of-center politicians now lead every major Western nation, including
most of Europe. So what? Real power is shifting to global businesses, which
are merging at a record pace, and to central banks, rapidly consolidating
their authority. The euro accelerates both trends.

Jürgen Stark, vice president of the Bundesbank, says the euro presents a
"great opportunity for Europe to combine sound monetary and fiscal policy
with more flexibility." These are code words.

"Sound monetary policy" means that the new European Central Bank (freed
from democratic oversight) will fight inflation, not unemployment.

"Sound fiscal policy" means that public spending, already slashed as the
price of admission to the euro club, will stay that way.

"More flexibility" means that a common currency will push employers to cut
costs, especially payrolls.

Europeans are willing to go along because these sorts of policies appear to
have paid off for the United States. President Clinton's 72 percent popularity
rating, impeachment notwithstanding, exactly matches the record
percentage of Americans who think our economy is good. It is no

What Europeans don't know is that America's economic ebullience rests on a
house of cards. It's not "sound" macroeconomics and a "flexible" labor
market that have put us in such a good mood. It's a stock market that has
soared into the stratosphere, combined with plummeting world commodity
prices that have made oil and raw-material imports so cheap that even the
Fed has briefly stopped battling inflation.

The Dow Jones could come back to earth with a thud when the frenzy
abates. Our ballooning trade imbalance will pop at some point.

Meanwhile, we aren't saving a dime. And when the going gets rough again,
we will notice that the gap between rich and poor has widened into a chasm,
nobody has job security, and there is no safety net. Even in these frothy
times, more of our children are impoverished than before the expansion
started, and fewer Americans ever see a doctor.

The euro will surely make Europe more efficient, speeding capital to where it
can get the highest return. But the real lesson from America is that people
don't move nearly as fast as capital.

Left-of-center governments, here and abroad, used to provide a buffer
between the two. Now, capital is running the show everywhere.

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